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Higher Oil Prices Soon To Squeeze Consumers

By Justin Blum and Nell Henderson
Washington Post Staff Writers
Monday, November 1, 2004; Page A01

Until about five years ago, Deere & Co. used oil-based products to manufacture the exterior panels on its John Deere agricultural combines. But then the company decided to start using alternatives, displacing some of that oil. The typical combine's panels now include material processed from about 2 1/2 bushels of soybeans and about half a bushel of corn.

"Here's a new use for corn and soybeans," said Barry Nelson, a spokesman for the Moline, Ill., company, "and we can put it right on the combine for our customers harvesting this crop."

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For weeks now, economists have watched the steep rise in oil prices and concluded that a combination of improved energy efficiency and market competition have buffered the U.S. economy against the inflation and other economic problems triggered by earlier oil shocks. Since the first Arab oil embargo in 1973, American industry has shaved by about 50 percent the amount of oil it takes to produce $1 of economic output. During the latest oil spike, the fear of losing customers has led businesses to trim profits, squeeze other costs, or postpone investment and hiring instead of increasing prices to consumers.

So far.

From major manufacturers to local bus companies, evidence is building that the slack in the system is being used up and soon consumers will feel the effects of $50-a-barrel oil.

Whirlpool Corp., the home appliance maker, has announced plans to raise prices by an average of 5 to 10 percent on average, largely because of increases in its oil-related costs.

The price changes likely "would be reflected at the consumer level," and not just absorbed by retailers, Chairman Jeff M. Fettig told industry analysts recently, according to a transcript of his remarks prepared by CallStreet LLC.

Giant Food LLC, the Washington region's biggest grocery chain, has experienced a 30 percent increase in the cost of diesel fuel for its delivery trucks over the past year, and it has absorbed some of that through computer-aided loading and routing of the trucks to maximize efficiency, said Barry F. Scher, vice president of public affairs.

But, he said, eventually "all of our costs go into that can of peas. . . . I can't say they won't be passed on."

Capitol Trailways of Harrisburg, Pa., has so far limited increases in the cost of its regional bus service to a surcharge of $1 a ticket on some routes, but that is only because it benefited from a long-term fuel contract that is about to expire. When a new fuel contract is negotiated, "it's going to be tough," to determine how much of the increased cost to pass along, said the company's vice president, Skip Becker. Higher prices, he worried, could discourage ridership.


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