More Than Gasoline: Price Rises Could Hit Other Sectors With PM-Oil Boom, Bjt
Aug. 08, 1990
Undated (AP) _ If higher oil prices hold, the effect is likely to spread beyond gasoline to utility bills, home mortgages, food, fertilizer, automobile tires and a myriad of other goods.
''The first victims in line will be utilities and transportation industries,'' said economist David Wyss of DRI-McGraw-Hill Inc. in Lexington, Mass. ''You can expect your electric bills going up.''
Wyss said inflation via high oil prices ''gradually dribbles down to almost everything in the economy.''
The American Automobile Association reported Tuesday that gasoline prices at the pump hit nearly five-year highs. Self-service unleaded rose 1.5 cents overnight to $1.201 per gallon, the highest price since the last week of 1985.
In its survey of 1,400 stations nationwide, the AAA said unleaded fuel increased 12.6 cents since last Wednesday, the day before Iraq's invasion of Kuwait sent the price of crude oil skyrocketing on world markets.
Spot checks showed gas prices up as much as 25 cents at some Michigan service stations. That is one of the biggest weekly increases since the 1973 Arab oil embargo.
Various industries that rely on oil for transportation or production said rising fuel prices would have to be passed onto consumers eventually.
Frozen Food Express Industries Inc. in Dallas, which hauls perishable products nationwide, is one of several companies that has asked the government to approve a surcharge on shipping rates because of the oil price rise.
Chairman Stoney M. Stubbs Jr., whose company has 1,000 refrigeration trucks, said up to 20 percent of costs are related to fuel.
''A 15 cents a gallon increase eats your profit up,'' said Charles Lambright, an independent trucker in Jacksonville, Texas. ''The only way we can stay in business is with a surcharge.''
Surcharges are passed on to the food companies or other users, and economists predict those increased costs gradually will show up on supermarket shelves by October.
Oil is a major component of the raw materials used to make tires. ''If oil prices continue at higher levels prices will have to reflect these higher raw material costs,'' a Goodyear Tire & Rubber Co. spokesman said.
Oil price increases could also directly affect the price of plastics, fertilizer and other products made from petroleum-based raw materials.
Utilities that burn large amounts of oil pass higher fuel costs on to customers. However, utilities use more natural gas in the summer, and that could help forestall higher electric bills.
Boston Edison Co. said customers will pay more for electricity if oil prices remain high after the utility's 30- to 45-day supply of oil runs out. The utility generates about a third of its power from oil in the summer and about two-thirds in the winter.
Home mortgage interest rates have risen as much as half a percentage point in recent days to above 10 percent, following Treasury bond yields upward in reaction to fears that higher oil prices will trigger inflation.
''Right now there is a general pickup in daily applications as people look in to lock in interest rates and protect themselves from subsequent increases,'' said Countrywide's chief financial officer, Stanford Kurland.