What Is Price Pass-Through, and Why Should You Care?

When oil prices rise, why do groceries, deliveries, and other everyday purchases often get more expensive too?

Price pass-through happens when businesses cover their rising costs by charging customers higher prices.

Imagine diesel becomes more expensive. A trucking company now pays more to deliver groceries, so it charges the supermarket more for each delivery. The supermarket then has two choices: absorb the extra cost itself and earn less profit or raise prices for shoppers to help cover it. Not every cost increase gets passed along, and the ones that do often take weeks or months to show up on store shelves.

The economic data^? released this week show Gas prices jumped 9.1% in September. Airlines, which need fuel to fly, have raised their prices too: plane tickets now cost about 22% more than they did a year ago. Trucking companies are paying more for fuel as well, so it now costs businesses about 16% more to ship and store products than it did last year. Grocery prices haven’t gone up yet, BUT the companies that supply grocery stores are already paying more for food. Those higher costs usually reach shoppers eventually, which means the grocery bill may be next

A price increase in one part of the economy can eventually affect what you pay for something completely different. Because pass-through takes time, prices can keep rising for months even after oil prices start to fall, which is one reason inflation can be slow to cool down.