Why petrol prices are rising – and risk keeping inflation and rates high

A lack of competition is being blamed for the latest surge in petrol costs in the major capital cities, as high prices at the bowser risk keeping inflation higher for longer and reduce the chance of interest rate cuts any time soon.

NRMA spokesman Peter Khoury said Sydney and Melbourne recently broke petrol price records and Brisbane had come close to new highs.

Petrol prices reached new highs in Sydney and Melbourne recently.Credit: Eddie Jim

He said the fuel price cycles in those cities were experiencing bigger upswings and that more service stations were charging prices at the top of the range.

“When we get to the highest point in those capital cities, what we noticed in the last cycle was over 50 per cent of the service stations were charging on or near the highest price in Sydney,” Khoury said.

“It means there are more service stations charging more in your local area, it makes it harder to find a bargain, and it pushes the average price up in the biggest markets in the country.”

Inflation has been dropping since its near 8 per cent peak in December 2022, but is now falling at a slower rate as services inflation remains stubborn. In the year to March inflation reached 3.6 per cent and it is forecast to fall below 3 per cent by the end of next year.

But this week the Reserve Bank upgraded its inflation forecasts and now expects it to rise to 3.8 per cent by June and remain there until the end of the year.

RBA governor Michele Bullock said while inflation was declining, it was falling less quickly than expected.

“The inflation forecast in the next little while is going to be quite driven by petrol prices,” she said on Tuesday.

Inflation in automotive fuel has been rising, according to the Australian Bureau of Statistics’ monthly measure, reaching 8.1 per cent in the year to March – up from 4.1 per cent in the year to February.

“It continues to be obviously one of if not the major concern in terms of cost of living pressures,” Khoury said.

Retail petrol prices are affected by oil prices, which have been hit in recent years by the war in Ukraine and, more recently, fears over conflict in the Middle East.

But Khoury said oil prices were not the main factor in the recent price spikes.

He said a lack of competition among service station providers was a key issue in Sydney, Melbourne and Brisbane – noting Adelaide is one of the cheapest cities for fuel in the country and has a strong market for independent services stations.

“We’re pleased that it’s been called out by the RBA, because it’s been a real concern of the NRMA’s now that there has been a consistent lack of competition in the three biggest markets, which is really driving up prices across the country,” he said.

Theo Foukkare, chief executive of the Australian Association of Convenience Stores said he disagreed with the NRMA’s assessment.

He said consumers might not realise that service stations may look the same – but have different ownership.

“Ownership of petrol and convenience stores across Australia is in favour of the independent operators,” he said.

“They control more than half of over 7384 retail fuel stores and this is growing. Independent operators often are more competitive in terms of fuel pricing.

“Higher retail fuel prices are driven by international benchmark prices, however, it is important to note the market always decides the price.”

Foukkare encouraged motorists to use fuel price apps and websites that provide almost real-time information on prices.

While petrol prices are falling or at the bottom in those major capitals, Khoury said there was ongoing volatility in the market and the NRMA had been “genuinely fearful” a couple of weeks ago that there would be no price relief in sight.

“There’s nothing in the short term that suggests we’re going to see anything dramatic happen, up or down. Having said that we’ve been proven wrong before,” he said.

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