Will lower gas prices translate into savings at the grocery store?

Despite all the bad economic news lately, there is a silver lining.

Gas prices continue to tumble, with some drivers in the Pee Dee and on the Grand Strand now paying less than two dollars a gallon for regular unleaded.

In South Carolina, the average price for a gallon of unleaded gas is currently $2.09. That’s down almost a $1.20 in the past month. In North Carolina, the same gallon of gas will cost you $2.27. In Myrtle Beach, drivers are paying just slightly more, at $2.10 a gallon. Drivers in Florence are paying even less, at $2.04 a gallon.

But will lower prices at the pump translate to fewer cases of sticker shock at the grocery store?

Over the past two years, as gas prices topped $3.00 and later $4.00 a gallon, food prices followed close behind. Grocery store chains and suppliers blamed the skyrocketing fuel prices for the sticker shock shoppers were experiencing at stores across the country. Prices on such staples as bread, milk, eggs and cheese went up as much as forty percent.

According to an Associated Press article, Inflation is running at its fastest pace in 17 years in large part due to soaring energy prices. But don’t expect broad prices to fall in tandem with oil now that it’s retreating. In fact, recent price hikes for everything from salad dressing to trash bags to cat litter could stick.

That’s because oil’s increase has been so dramatic that many prices—including gas—haven’t kept pace. Even some companies that have raised prices in the last year still have lower profit margins.

Take General Mills Inc., which makes Chex, Cheerios and Pillsbury. The company said in its annual report that despite price increases for baked goods and the food it sells to cafeterias and restaurants, its profit margin declined by almost half a percent. If fuel prices drop, that might do nothing more than restore its old profit margin.

The same is true for gasoline refiners. While oil prices doubled in the last year, gasoline prices increased only about 38 percent.

The relationship between oil and gasoline “has grown so out of whack” that many refiners could be facing negative margins by year-end, wrote Julian Murdoch, a senior reporter for Hard Assets Investor commodities Web site.

Low gasoline production could also keep prices high. As consumers have cut back on their driving, refiners have produced less gasoline, keeping supplies low—and prices high.

That could be why, despite a 20 percent drop in oil prices from their record highs of $147.27 a barrel in July, gasoline prices have dropped only about 11 percent off their own records, falling from $4.11 a gallon to a more recent average of $3.65.

Away from gas stations, the stickiness of prices depends on how hard it was to raise them in the first place.

Industries where competition is intense and the product is essentially the same, like airlines, can react quickly to both higher and lower costs.

In other businesses, the lead time to create a product is much greater. Higher prices for corn and grain have meant higher feed costs for pork producers, causing them to lose money and leading them to slaughter hogs at a record rate this year. A smaller breeding herd means fewer pigs will come to market next year.

“We expect fresh pork prices and live hog values will increase gradually over time as supplies tighten,“ Smithfield Foods Inc. said in its annual report.

The poultry industry, faced with similar pressures, has been slaughtering chickens at a record rate. So even if feed prices fall 20 percent tomorrow, pork and chicken prices won’t drop in lockstep.

In other aisles of the grocery store, higher prices are often sticky—once they move in one direction, they tend to stay there.

Clorox Co. said in its fourth-quarter report that it raised prices this month for Clorox liquid bleach by 10 percent, the first increase in more than two years. It also took its first price increase in two years for cat litter and Tilex cleaner, and the first increase in a year for Hidden Valley Ranch salad dressing. Don’t expect those hard-won price increases to be reversed.

The same goes for invisible price increases such as when packages shrink while the price stays the same, pushing up how much you pay for each ounce. Producing smaller packages and retooling a factory takes time; once packages shrink, they tend to stay that way.

At Wal-Mart Stores Inc., house brand Special Kitty cat food, which used to come in 8 pound and 20 pound bags has shrunk to 7 pound and 18 pound bags. Purina Dog Chow bags that used to weigh 50 pounds now weigh 44.1 pounds. Formerly 21 pound bags of Arm & Hammer Kitty Litter are now 20 pounds.

Here are more tips to keep your food budget in check:

• Buy store brands. The quality of store branded food items has improved dramatically in recent years, and many now compete with major national labels, according to Tom Marks, senior editor at Consumer Reports magazine. Some consumers may want to stick with name brand detergents or soaps, for example, but buying store brands for a broad array of products from fruit cups to cereals and pastas can save anywhere from 20 percent to 50 percent, Marks said.

• Evaluate unit prices. Buying in bulk is traditionally more economically, but that’s not always the case, Marks says. So he and other experts recommend shoppers look at the item’s cost per unit, which is found on the shelf sticker next to the item. Marks added that when items go on sale, shoppers should always compare the cost per unit on both the big and small packages to see which is a better deal.

But experts also say shoppers should keep in mind how much their families are going to consume. It’s not economical to buy a big bag of fruit if it’s going to end up rotting in the refrigerator.

• Compare prices of the same product in different areas of the store. “Where things are placed in a store can make a big difference,“ says Challagalla. For example, cheese is often cheaper in the dairy aisle than the deli because shoppers have to pay extra for it to be sliced.

• Clip coupons. Shoppers should look through circulars for special deals, but Marks warns them not to assume that all items in a supermarket’s weekly flyer are on sale. He noted that manufacturers could have paid to have the item featured.

• Obtain a store card. These loyalty cards allow shoppers to get extra discounts on items without having to clip coupons.

• Consider frozen foods. Frozen peas, fish and other items are cheaper than fresh because they have a longer shelf life.

“Anything that is perishable, shoppers are going to have to pay higher prices because stores have to build it into their (profit) margins,“ said Challagalla.

• Ignore precut fruit or vegetables or other prepped items. While it’s nice to have that pineapple cut up in chunks, that extra convenience costs money.

• Avoid items displayed at the checkout counter. Stores feature single serving pies, cans of soda and other items at the checkout that are often more expensive, but can be tempting to shoppers, particularly hungry ones, Marks said.