Fuel prices ease, but inflation keeps the RBA on edge
- Written by: The Times
Australian motorists have received some relief at the bowser. Yet cheaper petrol offers little reassurance when inflation is accelerating and the Reserve Bank is warning of a worsening outlook.
Fuel prices have eased across Australia, giving households a welcome saving after months of pressure. But the improvement comes with a qualification: prices have retreated from painful levels, and the broader inflation problem remains unresolved.
The Australian Competition and Consumer Commission’s report published on October 23 shows average regular unleaded prices across Sydney, Melbourne, Brisbane, Adelaide and Perth fell 5.7 cents a litre over the week to October 21, reaching 236.2 cents.
Diesel fell by a smaller 1.9 cents to 276.6 cents a litre. Regional motorists also received some relief, although average prices remained higher than in the five largest capitals.
For a motorist buying 60 litres of petrol, that weekly decline represents a saving of about $3.42. It helps, but hardly transforms a household budget.
Why have prices eased?
The immediate explanation is a decline in the international price of refined petrol.
Australia’s pump prices are heavily influenced by overseas markets for finished fuels. Those benchmarks feed into domestic wholesale prices, which then influence what service stations charge. The Australian dollar’s exchange rate also affects the cost of fuel bought in US dollars.
The ACCC reported that international refined petrol prices decreased over the latest reporting week, while refined diesel prices were broadly stable.
Local pricing adds another layer. Petrol prices in the five largest capitals typically move through cycles as retailers cut prices and subsequently lift them again. Consequently, a cheaper service station sign can reflect both international movements and local competition. Diesel does not follow the same retail cycles.
There is also reason to be cautious about how long the relief lasts. Australian Institute of Petroleum figures show wholesale petrol prices in several capitals rose between October 26 and October 28 after earlier declines. That does not establish what every retailer will charge next, but it weakens the case for assuming a sustained fall has begun.
Why is inflation still raging?
The latest inflation figures measure September, whereas the ACCC’s price decline occurred in October. They describe different periods.
Australian Bureau of Statistics figures released on October 28 show annual consumer price inflation accelerated to 4.3%, up from 4.0% in August. Underlying inflation, measured by the trimmed mean, rose to 3.6% from a revised 3.5%.
During September itself, automotive fuel prices jumped 9.4%. They were 23.6% higher than a year earlier.
Pressure also extended beyond the petrol station. Housing costs were up 5.2% over the year, while services inflation was 4.1%. The figures show why a recent fuel-price retreat cannot, by itself, settle the inflation debate.
A short fall in fuel prices can reduce one source of pressure. It cannot immediately reverse earlier increases across household and business expenses.
The RBA remains unimpressed
The Reserve Bank’s concern is that inflation has stayed elevated for too long.
Speaking on October 21, Deputy Governor Andrew Hauser said the inflation outlook looked “materially worse” than the bank had projected in August.
He pointed to the prolonged Middle East conflict, technology-related demand and domestic capacity pressures. He also warned about businesses beginning to regard inflation of 3% to 3.5% as normal.
That matters because expectations can influence future pricing decisions, making inflation harder to bring down. Hauser acknowledged the difficult balance: tighter monetary policy is slowing activity, but inflation risks have deteriorated. His remarks kept further action in consideration without announcing a decision.
For households, the distinction is uncomfortable but clear. A cheaper tank of petrol is immediate relief. Lasting relief requires prices across the economy to rise more slowly.
Motorists can welcome the recent decline. Borrowers have little reason to treat it as an all-clear from the Reserve Bank.
