Wow. Just when the inflation genie was starting to slip back into the bottle, boom. The petrol price has decided to set new altitude records.
I filled up the car a few days ago and it was like an out-of-body experience. The speed with which the price on the bowser rose was astronomical. It felt like I was watching a video on fast-forward. As the next chart shows, both diesel and petrol prices are spiking heavily, reaching levels they’ve touched only very briefly in the past. Diesel prices are lifting the most.
This is most unexpected, and the reason is a combination of factors. The global oil price is up, as the next chart shows, and the Australian dollar is down. That combination makes fuel, which we import, extra pricey.
Fuel prices are probably the most salient price in the economy. Even though fuel is not the biggest expense households have, it’s the one price people are most aware of — and most prone to get upset about.
The next chart shows why. Fuel sales are extremely stable. It’s quite remarkable. Prices soar and fall, gyrate and cycle. But we just say: “Fill ‘er up.”
Fuel is what we call price-inelastic. Some people can work from home, cycle to their destinations, move house, or sell their car to buy an EV. But at a population level, those moves don’t work. Too few people have sufficient flexibility in their lives for petrol price changes to affect demand in the short run.
There was a dip during lockdowns, but even that wasn’t a fraction of the variation you might see in another category of goods. Demand then sprang back to its previous trajectory.
This is why petrol prices hurt. We have no substitutes. There’s no home brand option you can buy if the price of your preferred option goes up. You just have to suffer.
And rising petrol prices are far from the only kind of suffering in the economy. While inflation is falling from its highs, it’s still positive, and that means prices are still rising. What’s more, they are rising from their new, uncomfortably high levels. Inflation of 5% rather than 8% is welcome, but when the base price of the item is $1.20 instead of the old $1, any rise is extremely unwelcome.
As well as the poison of inflation, households are suffering from the cure. Higher rates continue to crimp household budgets. Retail spending fell in June, the first fall in six months.
Although the RBA is unlikely to raise rates again, the Commonwealth Bank reminds us that the impact of rate rises on households happens with a lag. Billions of dollars worth of fixed-rate loans are going to expire in the next six months.
“A$34 billion expired over the six months to June 2023 with a further A$52 billion expiring in the six months to December 2023,” wrote CBA economist Stephen Wu in a note to clients this week. “Only two‑thirds of the current cash rate increase has been felt by borrowers.”
The economy will continue to slow as Christmas approaches. That is likely to sour the national mood, and if petrol prices stay high the government’s popularity could suffer. Don’t expect Prime Minister Anthony Albanese to get on the front foot over the Voice if all anyone is talking about is the cost of living.
Over the longer run, of course, higher oil prices will cause us to change how we live our lives, with more efficient vehicles and more EVs on the road. But for now, the main side effect is probably economic friction and political unhappiness.
Are you driving less and planning to spend less on Christmas presents? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
Actually there IS a “Home Brand” substitute for petrol…………….
…………..and even better, it’s FREE, and AVAILABLE EVERYWHERE ALL DAY.
It’s called “Solar electricity”.
So stop whinging about the “Cost of living” and do something about it.
You want to continue driving a gas-guzzling pedestrian-murderer, get used to paying serious money for fuel, because it is only going to get worse as its market shrinks and drilling, refining and delivering it worldwide becomes less and less viable.
Ain’t economics grand?
We are a long way off ‘doing something about it”.
This is a big issue for me right at the moment, misinformation and actual economic thinking of opportunity cost! Related (and a possible future article Jason), that’s all over eco-twitter is a chart of renewable take up and higher electricity prices and statements along the lines of see its not cheaper! While the chart is a crime with mixed data, the correlation itself is meaningless when coal and transition costs are still in play. You can expect coal prices to go up distorting electricity prices (including malice of miners) that will offset any lower priced renewables. While no expert, and a multitude of factors influencing electricity prices from grid upgrades to transmission etc), the issue is will marginal cost of renewables be cheaper once fixed cost are written off. People really seem to forget that coal and the electricity was heavily subsidised to begin with. Its not like we had the argument to maintain candles, fixed fires, oil lamps in the 19th century. Electricity didn’t just happen it went through just as costly, if not more so, evolution and investment as today’s change to renewable. The burden was government more than industry. We just need to be aware of the misinformation propagated by the usual suspects where context is ignored.
One fact that somehow never gets a mention is that NOT A SINGLE COAL-FIRED POWER STATION HAS EVER BEEN BUILT BY THE PRIVATE SECT. Every one (plus the grid that connected them) was built by government. When the craze for privatization of anything that wasn’t nailed down was in full swing, the private sector was more than happy to pick up a slice of a monopoly for a bargain price.
Remember St. Gladys offloading Vales Point to a Liberal donor for $1 million? Yet retaining the obligation for remediation? Remember him selling it to a Hong Kong company for $745 MILLION?
“Better Economic Managers” in action……………….
In general, I agree with your post. The high cost of electric vehicles is a problem for the poor sections of our community, and as you suggest this is due in large part to the lack of second hand EVs. But there are many vehicles inhabiting our roads that are much more expensive than a Tesla 3, or an Atto or MG EV, especially among the larger gas guzzling SUVs, and their purchase exacerbates the problem. In fact, these EVs are not much more expensive than it would have cost to purchase a similar ICE 20 or 30 years ago, compared to the average wages. I have owned an EV for over 3 years and it is far and away the best vehicle I have owned. It costs me almost nothing in fuel and maintenance. Misinformation abounds from those petrol heads who despise electric vehicles.
Despite the fact that a Tesla Model S is faster than Australia’s most powerful ever production ICE……………..
https://www.youtube.com/watch?v=DyRJH8dVAhg
While countries all over the world have all sorts of incentives to trans to EVs (Tesla is now the biggest selling car in Europe), Australia’s govts are obviously so in the grip of the fossil fuel industry, it’s hardly on the radar. They’ll pretend they’re doing something but, as with housing, it’s all words no action
Agree, while it ignores how Australia is less developed economy which was one of the world research leaders in solar two generations ago, has dragged its heels, like the Anglosphere, on constraining carbon by pricing, transition and adapting, through media, collective ignorance and avoidance of change to maintain fossil fuels and related, even larger motor vehicles, with low/no fuel or emission standards (now being addressed).
As Burn-Murdoch wrote in the FT ’22, economics is the answer, not subsidising big carbon and IC propulsion systems:
‘Economics may take us to net zero all on its own. The plummeting cost of low-carbon energy has already allowed many countries to decouple economic growth from emissions’
https://www.ft.com/content/967e1d77-8d3c-4256-9339-6ea7025cd5d3 (includes an excellent graphical comparison of nations; EU is way ahead….)
Agree, while it ignores how Australia is less developed economy which was one of the world research leaders in solar two generations ago, but has dragged its heels, like the Anglosphere, on constraining carbon by pricing, transition and adapting. This has been through through lobbying, media, collective ignorance and avoidance of change to maintain fossil fuels and related, even larger motor vehicles, with low/no fuel or emission standards (now being addressed).
According to FT ’22, economics is the answer, not subsidising big carbon and IC propulsion systems as Australia has done:
‘Economics may take us to net zero all on its own. The plummeting cost of low-carbon energy has already allowed many countries to decouple economic growth from emissions’
https://www.ft.com/content/967e1d77-8d3c-4256-9339-6ea7025cd5d3
(includes an excellent graphical comparison of nations; EU is way ahead….)
For EVs to pay for themselves on fuel savings alone* you need to drive a very long way.
*There are other savings, and possibly a higher resale price too. But still, the upfront price penalty of buying an EV is considerable. In the realm of $20,000 to $30,000 more than a petrol car for a base model EV.
in my view it is unreasonable to tell people to simply buy an EV when the price of an EV is that much higher. (what’s more ,global EV supply is tiny compared to petrol car supply, that’s what we need to fix).
I live in the bush and petrol used to be my biggest weekly expense…. no more, with 10 kW solar panels and an electric car (BYD Atto3) my fuel costs have become zero.
Australia has a few weeks of petrol & diesel supplies. This has to be our biggest sovereign risk. A concerted effort to electrify transport would resolve this risk. It ain’t that hard….
Not to worry………………
…..thanks to “Angus the Incompetent” we have a perfectly adequate reserve supply.
Pity it’s in Texas……………………
Every time I look at those monstrous SUV’s on the road that block my vision, and every time I look at the price of fuel, I chuckle. Dinosaurs have a way of dying out.
Tesla has been Australia’s best-selling car all this year. Electric vehicles like the MG4 are now at parity price with similar petrol-driven equivalents, with much lower fuel and maintenance costs. Price gouging by the fossil fuel industry will only hasten its demise.
(Yes, I know not everyone can afford a new EV and I know that current high fuel prices hit the poor hardest. That sucks. On the bright side, though, these high prices will only help drive the permanent transition away from fossil fuels, which in the long term is good for all of us.)
Not really, though. An MG4 is just under $40k. You can pick up a Kia Picanto (if you just want a car) for half that or multiple larger options (Hyundai i30, Corolla, etc) for between $25-30k.
EV premium at a given – let’s call it “functionality point” – is about $15-20k. It’s not insignificant.
Not comparable…………….
……….the price of a car similar to the MG4 will be around $40k.
The running costs for each would be wildly different, and the lifetime of the EV would be inherently longer (there are FAR fewer parts to wear out).
Fleet buyers are concentrating much more on buying EVs and within three years the ex-Fleet EVS will start hitting the second-hand market, when EV takeup will start going exponential.
I’d repeat one point you took exception to before…………..
……within ten years it will be hard to buy petrol in Australia (and/or wildly expensive) because the economics of shipping it around the world and distributing it across Australia will just no longer make sense.
Yes it is. If all you want is “a car”, then your EV point of entry is twice the price of an ICE vehicle.
I am not familiar with the MG4 as small cars are not a market segment I’m interested in anymore, however, from a quick perusal of some reviews it appears very comparable to a Corolla or i30 (and, indeed, is compared to them in said reviews).
Other than the battery.
There’s a lot of running costs in $10-20k worth of saved purchase price, and that’s assuming the buyer even considers (or cares about) whole-of-life cost.
Average vehicle age in Australia is ten years, and a properly maintained ICE vehicle should be able to reach twice that. It’s difficult to see EVs increasing that average, especially since they’re more likely to be written off in accidents due to repair costs should the battery be damaged.
Fleet purchases are factored into the 10yr average vehicle age already. They’re not going to put any more vehicles on the road than they otherwise would.
There are non-trivial sections of the market that are poorly served by EV options at this time, and will probably remain so for another 1-3 years.
So the exponential curve is probably more like 5-7 years away than 3. But, again, there’s little reason to believe EVs are going to drive vehicle replacement any faster than “normal” – ie: producing the ~10yr average age – outside of a substantial cash-for-clunkers-style Government intervention programme.
Let me put it this way. If every single new car sold from today onwards was an EV, ten years from now ca. 40-50% of vehicles on the road would still be ICE (same in NZ, UK, USA and probably a lot of Europe and Asia). We are many years – probably a good five – away from (nearly) every new car being an EV. In ten years there will probably be fewer petrol stations (though they are already in long-term decline anyway), but it’s unlikely people will have trouble finding one.
Twenty years down the track might be a different story.
“Other than the battery”……………
………another urban myth.
The batteries don’t wear out, they lose a (small) proportion of their power output.
When they are no longer suitable for use in a car, they are already being re-purposed as stationary batteries (houses etc.)
As for your other responses, I can only say that the future always comes as a complete surprise to people who are unable to contemplate it.
Yes. That’s “wearing out”. 10-15 years seems to be the expected lifetime before serious degradation, depending on environment and usage patterns.
But the real point there was that EVs are unlikely to have longer service lifetimes than ICE vehicles, at least given today’s technology.
I’ve spent quite a bit of time “contemplating it”, both due to general interest in cars and technology, and because I don’t want to get stuck with a suddenly devalued ICE vehicle (and I’m already on the downside for being too optimistic there’d be a good replacement for my Tiguan Allspace available by the end of this year when its lease runs out). I’m more than happy to be wrong, but you need to offer something a little bit more intellectual than ‘EVs rool ICEs drool’ to be convincing as to why anything above is wrong or unreasonable.
An interesting definition of “wearing out”……………..
……….nonsense, but interesting.
On the wider front, you are making the same mistake as the Big 4 accountants who wrote the intergenerational report (of which I have no doubt, the only involvement of Treasury being to tick off the nonsense findings).
They project forward on a linear basis (which is how they end up with the ludicrous 0.5% hit to GDP).
Things like the availability of petrol will only decrease on a linear basis until the economics no longer stack up………….
…….when it will cease being a “commodity” overnight and become a niche product. Anyone who owns a petrol station or a mechanical workshop should be looking for an edge urgently. Do you think the manufacturers of Pistons, Rings, Gaskets, Oil filters, crankshafts etc. are not already looking for something new to do?
Such dislocations happen without notice, and in real time (remember Kodak?).
I would not be replacing one ICE vehicle with another at this stage. An EV might cost a bit more, but it will be future-proof. Your ICE will be a boat-anchor.
The economics of petrol are not going to cease stacking up “overnight” when ~50% of the vehicles on the road – not just in Australia, but most of the world – still require it.
I wouldn’t want to predict exactly where that tipping point is, but I reckon it’ll be closer to 0% of petrol cars on the road than 50%.
I repeat, if every single car sold from today was an EV, “inside ten years” they would still only constitute about half the vehicles on the road. And we are a good few years away from every new car being an EV.
Your argument relies on Australia – and most of the world – turning over its vehicle fleet in the next decade at 2-3x the rate it has for the previous 50+ years. That is in no way a hand-wave assumption.
My quick google showed that the best Tesla could do for 2023 was 4th and as low as 8th.
Cars, not utes……………….
Charging my Atto 3 from home from off peak electricity is costing me under $2/100kms vs the ICE car I used to have which was costing over $22/100kms @ $2/L. I’m hoping the increasing cost of petrol/ diesel will make people rethink their choice of vehicle they buy.