Aussies count down to $500 million a month loss

Australia has been propped up to the tune of $3 billion in six months but the cash tap is being cut off. Now what happens?

In recent months, Australians have experienced some much needed relief from high petrol prices, with the average cost of regular unleaded coming down as much 48 cents a litre since its recent peak back in mid-June.

But there has been another positive knock-on effect driven by Australians to have more cash left in their pockets each month after paying lower fuel costs – increased scope for greater retail spending.

This additional spending power may have played a significant role in boosting the nation’s retail sales growth, to an extremely impressive 16.5 per cent year on year, as the next chart on retail spending shows.

At this point it’s worth noting that spending on fuel isn’t included in the ABS retail sales figures. In some other nations such as New Zealand or the United States it is, leaving spending levels static regardless of whether or not a household spends their cash on fuel or other retail purchases.

Based on the most recent survey of motor vehicle usage from the Australian Bureau of Statistics (ABS), Australians consume a little over 2.75 billion litres of fuel each month on average.

When fuel was at its most expensive, Australians spent $5.8 billion on fuelling up in just one month. But after prices came back down in recent weeks, that figure came down to $4.64 billion, a drop of $1.16 billion per month.

To put this into perspective, in the most recent month of figures, Australians spent $34.7 billion at the nation’s retailers.

To what degree falling fuel prices have definitively boosted retail sales is uncertain. But it’s not hard to imagine that a significant proportion of the windfall Australians have enjoyed due to lower fuel prices have flowed into the tills of the nation’s retailers.

Source: Australian Institute of Petroleum

A temporary factor in our favour

One of the major factors underpinning lower fuel prices has been the Morrison government’s cut in the federal government’s excise tax. Since the end of March, the halving of the excise tax has taken 22 cents a litre off the cost of fuel, plus the GST that would have been payable on the otherwise higher fuel price.

Over the past six months, the measure has added an estimated $3 billion to the wallets of Aussie households, providing a much-needed boost during the fastest decline in living standards in at least a generation.

But as they say, all good things must come to an end.

On Friday, normal levels of excise tax will resume, but motorists are not expected to immediately feel the pinch, at least in theory.

According to the National Roads and Motorists Association (NRMA), there will still be around 700 million litres of petrol in tanks at service stations nationwide that were purchased at the discounted rate before the excise tax cut is scheduled to rise.

NRMA spokesman Peter Khoury concluded that, “It will take several days in the capital cities and possibly even longer, up to two weeks in regional areas” before prices are impacted by the end of the excise tax cut.

Falling oil prices

As concerns over a possible global recession continue to mount, the price of oil has fallen to its lowest level since early January, entirely erasing the gains seen on the back of the war in Ukraine and then some.

This fall in oil prices has largely been responsible for the fall in fuel prices that we have seen since the recent peak in prices back in June.

Since peaking at more than $US123 ($A192) a barrel on the June 14, the price of oil has fallen by as much as 37.5 per cent, as the next chart shows.

Whether this run of lower oil prices will continue is very much an open question.

On one hand, global markets are pricing in a growing chance of falling oil demand due to deteriorating economic conditions. On the other, real world supply and demand factors could see oil prices stay higher than may have otherwise been expected.

There is also the factor of a growing gap between fuel prices and the pricing in financial markets for oil, petrol and gasoline. For example, despite continued falls in gasoline futures pricing in the United States, gasoline prices at the pump in many states is rising because there is a growing gulf between the price of physical fuel and financial market pricing.

To what degree this will impact Australia as further restrictions on Russian energy exports go into effect later this year remains to be seen.

The bottom line

While continued falls in oil prices could help to cushion the blow from the end of the fuel excise tax cut, there are no guarantees that this will come to pass.

From October onwards, Australians are going to have roughly $500 million a month less in their pockets to spend on retail and other purchases.

To some degree this is likely to weigh on retail sales growth, particularly considering how swiftly the change in prices will occur.

But there is something of a little silver lining in all of this, beyond the obvious $500 million a month boost to the federal Treasury’s coffers.

By removing around $6 billion a year from the budgets of households, this acts in a similar way to the RBA raising interest rates by roughly a quarter of a per cent, potentially keeping rates slightly lower than where they would head otherwise.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator