Folks, I cannot recommend visiting an Ampol or Shell petrol station right now. Or any brand actually. I did it yesterday and drove away in a state of utter shock. The numbers on the bowser are simply a lot bigger than you’ve ever seen.
We’re spending supermarket amounts at the petrol station these days. While, at the supermarket, we’re spending weekend-away-including-flights amounts. The price of everything is up, and the recent spectacular surge in petrol prices is like a dagger in the thigh.
Also by Jason Murphy:
That brief moment in 2020 when oil prices went negative in America and petrol prices went below $1 a litre? Feels like a dream now.
The bowser seems to tick up to $50 shortly after you first squeeze the trigger. If you can avoid ticking into 3 figures, congratulations. Cars with big tanks are looking at paying over $200 to fill up. I don’t envy the Prado owner at this time. Every trip to the servo is likely to set off alarms in their bank’s head office.
The price of petrol is rising just as we’re supposed to be getting on top of inflation. The crazy pace of price rises in new dwellings is actually over now. Health is now falling in price. The overall inflation rate is down from 7.8 per cent to 6.0 per cent.
But, in this garden of price relief, there has sprouted an ugly weed: petrol price inflation. And I promise you it’s the one thing people will notice. That’s a shame, because the progress on all the other kinds of inflation is actually welcome. It’s a sign our interest rate hikes haven’t been a total waste.
But nothing catches people’s attention like petrol price rises. It’s what they call “salient”. We notice it. That’s for a couple of reasons. Obviously, they put the price up in big numbers on the sign at the entrance, that’s reason one. But the other reason is it’s very hard to avoid spending money on fuel.
You can feather the accelerator and stick your car in eco mode, but it doesn’t make much difference. There’s no home-brand fuel you can switch to when prices go up.
Some people might get their bike out of the garage but, for most people, our commutes are pretty much set. If you have a spare EV in your garage to break out in case of a fuel price spike, kudos, but most people don’t.
This shows up in the data too: when petrol prices surge we buy pretty much the same amount of fuel as when they are stable. Likewise, when the government cut petrol taxes in 2022 for six months, it didn’t cause us to buy much more fuel. In the long run, people can buy more fuel-efficient vehicles if prices rise but, in the short run, they’re stuck paying for petrol. Which, incidentally, is less expensive to import than diesel now, as the next chart shows. (nb this is using terminal gate prices, not retail prices, which are even higher.)
The rising price of petrol will make it hard to convince people of the official story: that inflation is falling. It will make people stressed, cause consumer spending on other things to fall, and cause the government’s popularity to fade. But why is it rising? The price of oil is up, yes, but not by that much. It was higher last year.
The issue isn’t OPEC drilling for less oil. Not this time. The difference is, this time last year, our dollar had a bit more oomph. Now it is limp. One Aussie dollar buys just 64 US cents now. So, we need to fork out even more Aussie dollars to pay the price for oil, which is sold in US dollars. Our weak dollar should make all imports more expensive, but petrol is the one where they pass the increase onto consumers most quickly.
Until this changes, I recommend closing your eyes when you fill up with fuel.