PITTSBURGH — The drastic spike in crude oil prices and the fevered shock of drivers dealing with high gasoline prices for the first time in years appear to be subsiding. The dip is tiny, so far, but if every 1 cent increase is cause for alarm, a 3 cent drop is worth noting.
Gasoline in Pittsburgh averaged around $4.33 per gallon on Monday, according to AAA, down slightly from the all-time high of $4.35 per gallon on March 10.
So it might get easier at the pump. But consider all the other things you might be buying when you stop to fill up. Candy. Magazines. Windshield wiper fluid. Baked into that Snickers will be the energy inflation of the past year. Perhaps in a few months, and to a much smaller extent than our gasoline budgets, that candy bar will bear some imprint from how the oil world reacted to Russia's invasion of Ukraine.
Most of the world's transportation runs on oil, and a large portion of things we buy are made from oil-derived plastics. So while gasoline prices mirror the crude oil market in close to real time, the trickle-down effect of more expensive oil is felt in various ways for weeks, months and sometimes years. It depends on how big the shock is, economists say, and how long it lasts.
The war-related price spike — crude oil rose quickly after Russia launched an attack on Ukraine on Feb. 24 and peaked at $128 per barrel on March 8 — came on the heels of a yearlong run-up in energy prices caused by demand for all sorts of goods and services rebounding from the depths of the pandemic quicker than supply could catch up.
Last week, the Bureau of Labor Statistics released data through the end of February, showing a nearly 8% year-over-year increase in the consumer price index — the highest jump since the 1980s.
One reason for that is energy cost inflation.
"Literally everything we buy gets delivered somewhere close to us by truck," said Paul McMorrow, owner of specialty packing and shipping company Craters & Freighters Pittsburgh.
McMorrow's Cranberry-based company packs customers' items — often industrial machines, artwork, robots, or things that require special handling — and contracts with a shipper for the transportation. That shipper bills Craters & Freighters and, in times of high oil prices, includes a fuel surcharge to account for fluctuations. McMorrow then passes that on to the customer as a separate line item, in part because it's easier for people to understand a higher price if it's linked to something they have experience with in their own lives.
Then there are the other oil-impacted costs that aren't as obvious but end up on the bill just the same.
Craters & Freighters buys a lot of lumber and polyethylene foam for its packaging. The price for each has gone up significantly over the past year, in part because of the increased transportation cost, and in part because of supply chain disruptions.
A 9-foot-by-4-foot sheet of plastic foam that the company uses for cushioning used to be run about $25. Now, it's $37, McMorrow said. That increase will get passed along to the customer.
Think of all the plastic things you don't buy directly: plastic shopping bags, takeout containers, straws. All have gone up in price, in part of because of an increase in demand. Add to that the increased price of raw materials and transportation — both come from crude oil — and you get a sharp increase in costs.
Swings in the price of plastic packaging, according to monthly data in the producer price index, tend to follow crude oil prices by a few months. Over the past year, those prices have gone up faster than at any time since the category has been tracked, beginning in 2006.
Polystyrene foam products, used for things like takeout containers and building insulation, went up an even steeper hill in the past year.
"We're at near record levels of PPI inflation for more finely processed goods," said Joseph Kowal, an economist with the Bureau of Labor Statistics who works on the producer price index, measuring the prices that businesses get when they sell to other businesses. This is different than the price consumers pay for those goods when they are done being manufactured, distributed and sold at stores.
On the one hand, the more steps there are in the production process, the more diluted the impact of high energy inputs becomes. Other expenses such as real estate and labor come into the mix. On the other hand, many of those steps will involve their own energy inputs — powering a factory, driving parts to a distributor, heating the warehouse — each a way to inject more energy inflation into costs.
A run-up in plastics prices won't be felt as immediately as gasoline increases. First, crude is processed to remove compounds that will then be converted into resins and transported to a facility that will make that into plastic pellets. Those plastic pellets will travel to another factory that makes a particular plastic part, like a car bumper, which then gets delivered to an assembly plant and then to a dealership.
"You have the time lag of all those sales and contracts," Kowal said.
By the time it gets to the consumer, the crude oil spike experienced months ago will be less drastic. But even though the cost to produce an item might go up and down in response to swings in material and energy prices, consumer prices rarely go backward, Kowal said.
Zoom out far enough and the graph of consumer product inflation is a diagonal line in steady ascent. Map that against energy prices, which look like the quixotic spikes of a heart monitor in a medical drama, and a relationship is far from clear.
Yet it's pretty obvious that "every period of high inflation since at least early 1970s relates to higher energy costs," said Steve Reed, another economist at the Bureau of Labor Statistics, who collects consumer price data.
In a July 2006 review of economic effects from energy price increases, the Congressional Budget Office found that households tend to feel the impact of energy spikes and inflation more than businesses, as companies can pass through the increases to consumers, but consumers are at the last stop of that train. Reactions to energy price increases can include driving less, buying less, or putting less money into long-term savings.
Even after you stop gasping at the gas station, you might get a whiff of the same market forces that led to gasoline spikes when you check out at grocery store or, months later, if you buy a new microwave. The trickle down may be hard to see, but it spreads just as oil does.
