During this week’s discussion on Switzer Investing TV, Jun Bei Liu dropped a pearl of wisdom that shows how households are already fighting the equivalent of multiple interest rate rises in their budget already thanks to petrol price hikes.
Jun Bei shared that a 50-cent per litre jump in petrol prices was the equivalent of households grappling with three straight increases to the RBA cash rate.
That figure lands harder when you put it in dollar terms.
Average unleaded petrol has risen from $1.80 a litre before the US-Israeli airstrikes on Iran to $2.30 for unleaded in most capital cities. Those driving diesel vehicles are feeling the pinch especially hard, with some prices jumping to $2.70 per litre.
A family filling up on unleaded gas once a week is now paying $1,430 more over the course of a year. Hope you remember to bring your discount receipts.
Oil prices jumped the moment the missiles started flying. They climbed further when the Strait of Hormuz, the narrow shipping lane through which roughly 20 per cent of the world’s daily oil supply flows, was effectively closed to tanker traffic as Iran retaliated against US-Israeli strikes. Brent crude surged past $US120 a barrel, a level not seen since the height of the Ukraine war in 2022, and prices at the bowser followed within days.
Fuel prices have spiked so much that a rush on petrol stations commenced nationally. So much so that the NRMA has urged Australians not to go hoarding the stuff like it’s toilet paper during COVID.
NRMA spokesman Peter Khoury said the shortage at service stations was not a supply issue but a demand issue, with Australians buying fuel “at a far greater rate than they normally would”.
China has since restricted fuel exports and to stabilise supply, our federal government announced it would release up to 762 million litres of petrol and diesel from domestic reserves. Meanwhile, we’re also set to get ‘dirtier’ fuel over the next 60 days as part of the bid to keep the pumps flowing.
The hike in fuel prices then unfortunately becomes somewhat of a self-fulfilling prophecy, as Peter Switzer points out, as the spike in fuel prices feeds back into inflation, which in turn pushes up rates.
“There are more people with cars than there are people with mortgages. So I think that’s a big hit to the household. And we also know that if I raise interest rates on top of a price increase for petrol, this is like two big cost pushes that pushes inflation up,” he added.
