Cheaper oil, but not smaller grocery bills

As fuel prices spiked sharply this year, inflation chomped into consumers' wallets.

Manufacturers raised the costs of many products, not just petrol but other items like toothpaste, plastics or lotion- all of which are made with ingredients derived from oil. Now that crude oil prices have eased, so will food and other grocery items, right? No.

Although oil, food and other commodity prices are closely linked, there are a host of other reasons that are and will be keeping your shopping bag expensive.

For one, experts say some products, particularly food items, are just too stubborn to react to any downtrend. Their prices normally rise instantly but, unlike energy prices, they slide slowly or tend to get stuck on the way down. This is true with a lot of daily essentials such as meat, eggs, milk and cheese.

The Dubai Chamber of Commerce and Industry had predicted that, given the global squeeze on agricultural imports, these products are likely to log an annual inflation rate of seven per cent this year.

According to Kamal Vachani, owner of Al Maya Group that runs a chain of supermarkets in Dubai, the decline in oil costs will not directly trigger a fall in commodity retail prices. "We don't see an immediate drop in prices. It will take a long time for the local prices to react," he says.

Besides, traders have to deal with a number of input costs, not just energy or transport expenses.

In the UAE, top market suppliers such as the Emirates Modern Poultry Company and Ras Al Khaimah Poultry and Feeding Company earlier warned retailers of price hikes for chicken.

The warning, issued days before Ramadan, didn't come as a surprise. The costs of corn-and soybean-based animal feeds have soared. This is a burden to livestock owners, who spend a huge chunk of their production budget on feeding their animals.

Yes, the falling oil prices should ease price pressures on oil-dependent production costs, but the trouble is, some non-food producers could still be making consumer items from petroleum-based materials bought at relatively high prices. Oil-based raw materials are used in the manufacture of products like plastics, polystyrene and nappies.

How about non-oil based materials, you ask? Procter and Gamble (P&G), with brands ranging from skin-care items to nappies, announced recently that it still needed to raise prices by about three per cent.

Despite falling oil prices, non-oil based materials which had peaked significantly have remained expensive. P&G reportedly needs to spend $3 billion more to offset those costs.

And then, there's a general "wait-and-see" attitude among traders and manufacturers.

Even as oil prices retreated, businesspersons normally wait and see if the downtrend will continue before they commit to price cuts. As Vachani puts it, there's still a lot of uncertainty about oil prices. "Maybe the prices will go up tomorrow," he adds.

So, forget about getting an immediate relief to inflation. Even if oil costs are plunging, the high prices you're seeing now in supermarket shelves are definitely not going away.

Experts say some products, particularly food items, are just too stubborn to react to any downtrend. Their prices normally rise instantly but, unlike energy prices, they slide slowly or tend to get stuck on the way down.