CBA has a note out showing that the falls in the Australian dollar to date have already added 12.5 cents to petrol prices:
“Motorists need to brace for more pain at the petrol pump. And indirectly that means that retailers also need to brace for more conservative and price-conscious consumers.”
CBA notes that petrol is the “single biggest purchase for most households”. Add in a little Middle East tension and there’s some pain for you. With the dollar set to drop much lower over the next year this is another way that falling national income takes its toll.
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The lower-value $A has added 12.5¢ a litre to petrol over the past two months and pushed prices to above $1.40 a litre. If the $A had held its value at around $US1.055 the pump price would only be around $1.30 a litre.
Certainly, further $A declines are not a given. We are at US96.16¢ this morning.
It’s an important signal for the retail sector because petrol is the “single biggest purchase for most households” according to the CBA team and it can curb discretionary purchasing. Significantly, even households which do not own a car suffer from petrol shock because costs are passed on to delivery charges, transport fares and the price of perishable goods which need to be transported.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
