Falling Prices: Playing the Waiting Gameby Tim Manni
The recent reprieve in gas prices have gotten a lot of people thinking “why haven’t other prices dropped as well?” Well, there are a couple of answers, none of which will offer any immediate satisfaction. When it comes to falling prices, a key word is “waiting.”
As we’ve mentioned before on this blog, prices seem to rise faster then they fall. While it seems a price increase can be felt overnight, a decrease might take months. Everyone from farmers to airlines purchase commodities in the features market. They may lock in a price and agree to pay that price for a given set of time; for example farmers may sign contracts to purchase fertilizer (which has been extremely expensive) well into next year.
Another key word in the waiting game of falling prices is “fear.” When fuel costs rose, manufacturers and distributors were forced to raise costs. Although oil prices have fallen more than 50% since July, fear that prices will once again rise have kept the cost of doing business high.
Products like produce that can be cultivated and shipped in the short term are likely to see their prices drop first, rather than products with a longer curve of production. For products with reduced consumer demand, such as automobiles and homes, their prices have been dropping; consumers may be waiting for them to fall some more before buying.