It's funny how high prices stick

The Dallas Morning News
Sep. 14, 2005

Question: What do banks and gas stations have in common?

Answer: They both pass along increases in wholesale prices with great haste.

The Federal Reserve started raising interest rates in June 2004. That has increased banks' cost of borrowing, and they have been lightning-quick to push up credit card rates in response.

But when the subject rose of what they paid on deposits, it was as if the Fed had never made a move.

(Thank heavens for competition from Web-based banks for holding traditional banks' feet to the fire. Now you can get 3.25 percent on your cash if you beg and plead or simply threaten to take your business to cyberspace.)

Gasoline retailers have played the same game as traditional banks.

The nanosecond gasoline futures rise on the New York Mercantile Exchange, the price at the pump seems to move up.

Sadly, Hurricane Katrina allowed this game to sink to a new low. (The media's insistence at hyping "pain at the pump" didn't help.)

Wide gap

One day last week I made the mistake of waiting to fill up at a local grocer's proprietary station after I'd done my shopping. In the space of the 25 minutes I was in the store, gas prices jumped 6 cents.

By Monday of this week, wholesale prices had returned to where they were pre-Katrina — a decline of about 20 percent. But pump prices had merely ticked down by about 2 percent.

I'm no conspiracy theorist, but numbers are numbers. They represent the widest gap between futures prices and those for the pumping public in nearly six years.

To be sure, gas prices are guaranteed to fall in the coming days, bringing the gap closer to its historic trend.

Brace yourself

Maybe then I'll stop getting e-mails depicting the "New Gas Gauge" — a dashboard dial with dollar amounts where the gauge would normally read the gas tank level. ("FULL" was $90, in case you're interested.)

As for the banks, be prepared for them to display their worst colors come Tuesday, if the Fed pauses in its interest-rate hiking campaign or even hints that it might do so soon. The rate on your savings account will fall so fast it will make your head spin.

If you think that's the way the Fed will go and can part with some of your savings for a year or so, lock it into a CD rate today while you can.

Meanwhile, your credit card rate will remain as sticky as glue.