After months of record-high petrol prices across the globe, inflation rates are spiking in numerous countries, further increasing pressure upon both consumers and fuel retailers.
Put simply, oil prices directly impact inflation. Rising fuel prices increase the cost of transporting goods and services, and as a result worsen inflation by raising the end price that customers have to pay for all goods.
How are Petrol Prices Affecting Inflation Right Now?
In Australia, petrol prices grew 6.6% in the December quarter of 2021.
This was largely due to ongoing supply chain issues exacerbated by anxieties in December around conflict between Ukraine and Russia, one of the largest suppliers of crude oil to the world.
War did eventually break out in February 2022, drastically limiting supply and pushing crude oil prices to seven year highs.
As can be seen in the graph below, however, inflation had already been rising steadily by this point for several months as the world emerged from COVID-19 lockdowns.
Generally, crude oil has more of an effect upon Producer Price Indexes (PPIs) than Consumer Price Indexes (CPIs), meaning soaring prices in crude oil are more damaging to fuel retailers and businesses, than consumers.
Australian Producer Price Index (PPI), March 2018 to March 2022. (ABS)
Nonetheless, drivers around the world are experiencing record prices for petrol. While a number of governments around the world have tried to ease the pain at the pump with reductions to fuel excises, fuel prices have still continued to spiral upwards. The March quarter of 2022 saw an increase of 11% in fuel prices across Australia.
While this is not solely due to oil prices, it’s estimated that spikes in fuel prices contribute around three percent of changes to final demand prices.
The higher the CPI (consumer price index) grows in 2022, the more customers will try to find the best deal they can to fill up their petrol tank.
This important relationship between fuel prices and economic growth makes it vital for retailers to provide competitive prices for their customers.