The Ripple Effect

This is why I think we have some tough economic sledding ahead as the full impact of the current oil price starts to ripple out:

Beyond gasoline: Prices surge for oil-based goods

New York - Besides gasoline, the Department of Energy calculates, there are 57 major uses of petroleum – everything from cosmetics to ballpoint pens, nylons, and even the waxes in chewing gum.

That is why the effect of high oil prices is now spreading well beyond the pump, where gasoline hit another record price of $3.98 a gallon on Wednesday. Now, consumers will have to brace themselves for other higher costs, since businesses such as Kimberly-Clark, Procter & Gamble, and Colgate-Palmolive are raising prices on their products to recoup energy costs.

In brief, this means less money in consumers’ pockets in the months ahead. But it also goes beyond consumers. For example, the price of asphalt is up 65 percent so far this year – and municipalities’ and states’ road departments are cutting back. This may mean bumpier roads ahead.

Most people don’t realize how many products around them are oil-derived. Oil prices have increased so rapidly that there hasn’t been time for the price of oil-based products to catch up.

We have already seen the airlines get hit hard, but we still haven’t seen the worst of that. Just today:

Continental Airlines to cut 3,000 jobs and 67 planes

Airlines, trucking, and auto sales are the early casualties of high oil prices, but you should brace yourself for higher prices on almost everything. I think the only thing that will prevent that would be an immediate collapse in oil prices back to the $50 range, but I don’t see that happening.

Note: I am flying to the U.S. tomorrow, and will be out of contact for a couple of days.