Fuel prices have historically been a source of economic interest in the national economy, largely because fuel prices constitute an economic input cost for Australian households and businesses. The argument runs that, the higher the price of fuel (a necessary input to the economy), the less Australian households have to spend on other items and the greater the cost of goods and services transported by Australian business and industry.
In a continuation of this commentary, CommSec released one of its regular Economic Insights reports earlier this week. This report provides an analysis of the factors that are impacting the cost of living in Australia – as measured by the Consumer Price Index (CPI).
Among other things, the analysis showed that fuel prices had fallen by 3.9%.
But analysis of the long-term trend in national average fuel prices in Australia shows that average fuel prices in Australia aren’t just lower than last year. Average fuel prices in Australia are lower than they were 6 years ago (2013) and are actually lower than they were 11 years ago (2008) – in both absolute and real terms – as shown below.
In contrast, the costs of operating a service station (in terms of lease costs, wage costs, utilities and compliance costs) have increased by an estimated average of 2.9% per year over the past decade. The long-term decrease in fuel prices has therefore been delivered against a backdrop of substantial increases in industry operating costs for fuel retailers, suggesting that much of the opportunistic media commentary launched by motoring associations (and various politicians) about fuel retailers ‘gouging’ motorists is baseless.
“Such arguments are typically mounted at times when average fuel prices are at the top of the petrol price discount cycle, because that is when ‘cheap shots’ about fuel gouging are best made. But the reality is that the price ‘highs’ in a fuel price cycle are always offset by the price ‘lows’ and Australian motorists are paying lower annual average prices per litre of fuel than they were 11 years ago”, said ACAPMA CEO Mark McKenzie.
“When you couple this with the fact that the average fuel efficiency of the Australian passenger car fleet has improved by 10% over the last decade (meaning that households have to fill up less often), it is clear that the impact of fuel prices on average household costs has been declining on a long term trend basis”, added Mark.
Of course, much of the explanation for the lower cost trend lays in the fact that global oil prices (and regional finished fuel prices) have declined over the past decade – albeit that some of this reduction has been counter balanced by a fall in the value of the Australian dollar.
Given that these ‘wholesale costs’ – together with Australian government taxes (i.e. excise and GST) – account for around 88% of the retail price paid at the pump, there is always a risk that future retail fuel prices could increase as a result of sharp increases in oil prices (and regional wholesale prices for finished fuel products).
“But it is fair to say that the Australian fuel retail industry – which accounts for the remaining 12% of the cost of fuel paid at the pump by motorists – has done, and continues to do, the right thing by Australian motorists in the face of significant increases in business costs over the past decade”, said Mark
The above analysis begs the question as to whether Australia’s historical obsession with fuel price debates is justified by the facts? The simple answer is “No”.
“More importantly, while there will always be a section of the community that will be sensitive to fuel prices as a result of social disadvantage, you really have to conclude that the average weekly cost of filling up the family car is not as big an issue as it was a decade ago”, said Mark.
Next week, ACAPMA will launch the results of the 2019 Monitor of Fuel Consumer Attitudes – the third in a series of 2 year snapshots of fuel consumer attitudes in Australia. The 2019 Monitor reveals, among other things, that fuel costs were the greatest expenditure concern for just 13% of all Australian Households – well behind expenditure on utilities (at 40%) and behind expenditure on both food (17%) and medical (15%).
“Clearly, the facts point to Australian household expenditure on fuel having declined in recent years in both nominal and real terms, despite the apparent populist belief that fuel prices are constantly increasing”, concluded Mark
NB. ACAPMA’s 2019 Monitor of Fuel Consumer Attitudes will be released on 8 November 2019.