Oil Lifts Consumer-Product Prices, Too

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Due to soaring oil prices, everyday consumer items including plastic bags, shampoo, and diapers cost more.

Many American consumers winced when gas prices hit $4 a gallon. But the
price of oil has had an impact beyond the pump. Everyday items such as
plastic bags, clothing, and even diapers have increased along with the
cost of gas. "There are a lot of people who are having a hard time
now," says John Simpson, a spokesman for the advocacy group Consumer
Watchdog. "And things are going to get a lot tougher when gas hits $5 a

Already businesses such as Jelly Belly Candy are feeling the pinch. The maker of jelly beans and other candies has
managed to absorb the transportation costs that have risen with the
price of gas. But Jelly Belly’s signature clear plastic bags have
become more expensive to produce. "We have had to spend more on those
little, clear plastic bags than ever and pass the costs on to our
customers," says Bill Kelley, vice-chairman of Jelly Belly. "It is a
good thing that candy is a recession-resistant industry."

Plastics are not the only products that have become more expensive. Dow Chemical
raised the price of its chemical products by as much as 20% in the last
two weeks. Asphalt prices have increased by 55% from May 2007 to May
2008, according to Argus Media’s most recent Argus Asphalt Report. And, according to Information Resources,
a Chicago-based market research firm, the price of cosmetics and
personal-care products such as shampoo, lipstick, and deodorant has
gone up an average of 2.4% in the same period.

Consumer Activity Chugs Along

Despite the rising cost of gas and the looming threat of inflation,
economists such as Charles Schultze, a Brookings Institution fellow,
are not convinced people will stop buying gas or petroleum-derived
products just because they have become more expensive. Schultze
believes that, while Americans may continue to cut back on the purchase
of gas and other petroleum products, they will continue to buy the
things they need until they can no longer afford to.

"There is no ‘magic number’ where, all of a sudden, people change
their consumption habits," Schultze says. "Gas goes for $8 or $9 a
gallon in Germany and they haven’t stopped buying it."

The Germans may not have a problem with paying more than twice as
much for gas than Americans do. But higher oil prices would raise the
prices of many products we use every day.

Oil prices show no sign of going down. But for now, consumers are
expected to keep buying gas and petroleum-based products. Severin
Borenstein, an economist and the director of the University of
California’s Energy Institute, believes this continued consumption is a
sign the economy will continue to roll along, but at a slow pace.
"Higher gas prices will make life more difficult for people on the
edge," Borenstein says. "But it is not like Katrina. It is not the end of the world."

Winfield is a reporter for BusinessWeek.

Consumer Watchdog
Consumer Watchdoghttps://consumerwatchdog.org
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