Higher gas prices ripple through economy

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Published: March 17,2003

The U.S. Department of Energy is predicting that gas prices will soon reach new record highs of an average of $1.63 per gallon by April. The impact isn’t just felt by consumers filling up their personal vehicles for commuting to work or taking the kids to soccer practice. It has much bigger consequences than most folks realize as the impact of higher gas prices ripples out into the economy.

For example, just about anything purchased requires transportation to get to the consumer. Transportation costs, obviously, are linked to the cost of fuel. Diesel prices traditionally have been about the same as the lowest cost of gasoline. But now diesel is more than high grades of gasoline. It is estimated that 80% to 85% of the freight transported in Mississippi is moved by trucks.

“Of course higher prices have a terrible impact on the trucking industry, but this is nothing new,” said Dean Cotten, president of the Mississippi Trucking Association. “I don’t think it has been this severe in a long time. People in the trucking business know that OPEC raises prices periodically. It is a cyclical thing that always happens. Anyone in the trucking business very long knows to take precautions to get shippers to pay a fuel surcharge. The trucking industry’s margin of profit is extremely low to begin with. They either have to park the vehicles or they have to have a surcharge for the shipper. The same thing is true presently with insurance costs. The insurance industry is a cyclical business, and that has the same impact. This is not a new phenomenon for trucking.”

Cotton said trucking moves most of the freight transported in Mississippi because it is a specialized industry, while rail and water transportation are more limited.

“The trucking industry delivers to every house, every business and every industry,” Cotton said. “The rails don’t do that, of course.”

Higher gas prices also affect the cost of highways. Recently bids for three-laning Old Highway 63 in Lucedale came in at $50,000 over budget because of the increases in prices of petroleum affecting asphalt costs. In some cases the cost of asphalt is up 50% over a year ago, says Tone Garrett, executive director of the Mississippi Asphalt Pavement Association. “It is a concern. It is a big concern. We have plants shutting down and laying off workers just because of the increase in gas prices.”

Not only is the cost for the raw material going up, but energy costs for drying the aggregate have also soared. Then there are higher fuel costs to operate equipment to lay the asphalt.

Public works projects generally go on despite higher costs with the bill being passed on to taxpayers. Where there has been a more noticeable slowdown is in the private sector.

“The winter months are our slow time of year anyhow,” Garrett said. “This year a lot of people are delaying projects to the summer in hopes the price of natural gas will decline after this severe winter is over. It all depends on the war. We just don’t know what the gas prices are going to do. If it stabilizes, there is plenty of gas available.”

Adding to the problem is some abnormally cold temperatures in the northern part of the U.S. requiring more fuel for heating purposes. Michigan recently reported its lowest temperature on record, 31 degrees below zero.

Manufacturing is one the hardest hit sectors when fuel prices increases. Manufacturers not only pay more in transportation costs to get raw materials in and finished products out, but also are one of the biggest users of natural gas and electricity, which is often produced by natural gas.

“It just ripples through the economy when fuel of any kind goes up,” said Mark Leggett, director of government affairs, Mississippi Manufacturers Association (MMA). “What concerns manufacturers are these spikes. Natural gas prices are down slightly from what they were at the end of February’s peak of $9.50 or a little more. Now they are back down to $7. The fluctuations cause manufacturers problems. You have to make a product and you count on making it for a certain price. The problem we have in manufacturing is that there are so many things that go into the cost of the product that in today’s economy manufacturers can’t pass on.”

Natural gas prices also affect electricity prices because often gas is used to general electricity. MMA has been trying to work with the Public Service Commission to find ways to level out some of the price fluctuations.

“We all kind of get a double whammy effect,” Leggett said. “First the gas effect and then comes the electricity effect. We have been trying to work with the Public Service Commission about ways to help level out some of the electricity price fluctuations. Mississippi Power Company engages in hedging on natural gas prices and that helps moderate the natural gas prices. It keeps them more level. We think that is a good thing.”

Leggett also believes the higher prices for petroleum fuels will encourage people to look at types of alternative fuels.

Most experts expect gas prices will continue to increase. Traditionally the wholesale price of gasoline increases between March and May. That has happened every year since 1985.

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.


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