Sticky Prices

Hold on to your wallets! Something small, but significant has just occurred that could get lost amid all the inauguration hoopla and confirmation hearings. And this occurrence could have a more direct impact on your day-to-day finances than any of the bailout plans currently being discussed in Washington. Got your attention? Read on.
According to the Consumer Price Index just released, grocery prices took a small dip in the month of December. How small is small is .2%, but it's a bell-weather small. According to Ephraim Leibtag, economist at the economic research service for the Bureau of Labor Statistics, this is the first indication that grocery prices, which shot up 7% from November 2007 to November 2008 for the biggest increase in 18 years, are finally beginning to inch down.
You may have already noticed a decline in dairy prices, with a gallon of milk costing less than a year ago, when filling up baby and filling up the car were both spiraling out of control. Analysts say cereal and bakery products which were directly affected by escalating wheat prices, could be next.
So, does this mean you can bag a bundle at the supermarket and pay less for more? Certainly, not yet, and maybe not ever according to Chris Lafakis, economist at Moody'sEconomy.com. That's because of "sticky prices". Unlike "sticky buns" which are delicious caramelized pecan confections that taste good, "sticky prices" are harder to stomach. They are the retail costs for goods and services that don't come down when the cost of the commodities affecting them do. Lafakis says food producers saw big declines in their profit margins when the price of commodities went up. Many are trying to recoup and are reluctant to pass along decreases in the face of economic uncertainty.
Nonetheless, there's a "lot of pressure to see retail prices come down", according to Mark Hamstra, retail editor for trade publication "Supermarket News." Hamstra says, "there are a lot of heated negotiations between manufacturers and their suppliers right now. Americans spend between 600 and 700-billion dollars at the grocery store each year and a .2% price decline is still a whole lot of lettuce.
Consumers themselves took the lead in reducing their own tabs. They bought store brands like crazy last year. The nation's biggest supermarket chains Kroger and Safeway report the same phenomenon as northeastern cooperative Shop-Rite, strong gains in the sale of their private label brands.
All that being said, what can you expect as you roll that shopping cart down the aisles and try to stretch your food dollar in 2009? Almost to a man or woman, the experts, analysts, and industry watchers I asked said don't expect a great mudslide in prices. Do look for stabilization and leveling off. Translate that into some prices will remain the same, others will dip a little, and still others will continue to increase, but at a lesser rate.
What you can best use to your advantage will be special promotions and sales. Manufacturers and retailers reluctant to overall price reductions are likely to offer more frequent discounts on more products. Combing the ads for which of your closest grocers is offering the most deals on the most food each week is your ticket to savings perhaps more than ever. "Sticky prices" won't become suddenly unstuck, in just the same way increases in tolls and taxes rarely do, but the price of "sticky buns" and some other food items may, over the course of the year still ahead.