Petrol at 4-month lows; Inflation contained

Weekly petrol report; Inflation gauge

• Petrol prices: According to the Australian Institute of Petroleum, the national average Australian price of petrol fell by 2.5 cents per litre to a 4-month low of 130.9 cents per litre in the week to August 30.
• Tame inflation: The TD Securities-Melbourne Institute monthly inflation gauge was up 0.1 per cent in August to be up 1.7 per cent over the year. The trimmed mean measure was up 1.5 per cent over the year.

What does it all mean?

• It’s been a great three weeks for motorists. The national average pump price has fallen by almost eight cents a litre in the past three weeks and is now holding at a 4-month low. The main driver of the slide in fuel prices was the slide in global oil prices due to concerns about an ongoing supply glut and worries about global oil demand.
• News that Saudi Arabia had stepped up production to squeeze out higher cost energy producers that threaten Saudi market share added to the downward pressure on prices. The Singapore unleaded price has now fallen for seven consecutive weeks, with the losses accelerating in the past three weeks (down US$10 in the past three weeks) to US$61.40 – a six-month low. And even more encouragingly the slide in global fuel prices is still similar in Australian dollar terms and should keep domestic pump prices under downward pressure in coming weeks.
• The decline in world oil prices is a net positive for consumers and businesses across the globe. But the development is not without negative consequences. The speed of the fall in oil prices creates uncertainties for investors and businesses. And this snap back in prices on Friday adds to the volatility.
• Interestingly figures from MotorMouth show that petrol prices have been falling for almost a month in Melbourne. Meanwhile prices hit the high point (peak) on August 30/31 in Sydney, while prices in Brisbane and Adelaide have been falling for a week and a fortnight respectively. Only Perth operates on a uniform weekly cycle. The bottom line is that Melbourne motorists are enjoying fuel below cost while motorists in Sydney would be better off waiting a week before filling up the family vehicle.
• Inflation remains healthy without being excessive. In fact the economic environment in Australia is far different from some other parts of the globe. The euro zone continues to worry about the deflationary threat from sluggish growth, while in the US inflation remains below the Fed’s target rate. But here in Australia underlying inflation is holding at the low end of the Reserve Bank’s target 2-3 per cent.
• It is pretty clear that inflation is not a threat to the domestic economy, meaning that the Reserve Bank can comfortably keep interest rates at exceptionally low levels over the medium term. Domestic inflationary pressures remain well contained, and given the slow growth in wages, it is unlikely to result in a change to the domestic inflation landscape.

What do the figures show?

Petrol prices

• According to the Australian Institute of Petroleum, the national average Australian price of petrol fell by 2.5 cents per litre to a 4-month low of 130.9 cents per litre in the week to August 30. The metropolitan petrol price fell by 2.9 cents to 128.8 cents per litre and the regional price fell by 1.7 cents to 135.1 cents per litre.
• The national average Australian price of diesel petrol fell by 0.8 cents to 131.2 cents per litre in the week to August 30. Last week the metropolitan price fell by 0.7 cents to 129.0 c/l, while the regional average price fell by 0.9 cents to 132.9 c/l.
• Average unleaded petrol prices across states and territories over the past week were: Sydney (down 4.5 cents to 129.4 c/l), Melbourne (down 5.5 cents to 117.7 c/l), Brisbane (up 8.0 cents to 143.6 c/l), Adelaide (down 14.6 cents to 122.1 c/l), Perth (down 3.0 cents to 131.2 c/l), Darwin (down by 0.1 cents to 133.7 c/l), Canberra (down 0.2 cents to 135.0 c/l) and Hobart (down by 1.0 cent to 140.2 c/l).
• Today, the national average wholesale (terminal gate) unleaded petrol price stands at a 6-month low of 113.3 cents a litre, down around 5.4 cents a litre on a week ago. The terminal gate diesel price stands at 111.3 cents a litre, down around 2.4 cents over the week.
• Last week the key Singapore gasoline price fell by US$1.10 or 1.8 per cent to US$61.40 a barrel – a 6-month low. Singapore gasoline previously hit a near 6-year low (lowest since March 2009) of US$52.20 a barrel on January 13. In Australian dollar terms the Singapore gasoline price rose by 17 cents a barrel or 0.2 per cent last week to $85.66 a barrel or 53.87 cents a litre.

Inflation gauge

• The monthly inflation gauge was up 0.1 per cent in August after a 0.2 per cent rise in July. The annual rate of inflation rose from 1.6 per cent to 1.7 per cent.
• Tradable good prices rose by 0.1 cent in August to be up 1.4 per cent on the year. Non-tradable prices were unchanged in August to be up 1.9 per cent over the year.
• The underlying rate (trimmed mean) was flat in August after lifting by 0.1 per cent in July. The annual rate was unchanged at 1.5 per cent.
• Excluding volatile items like petrol and fruit & vegetables, the core inflation gauge rose by 0.2 per cent in August to be up 2.0 per cent over the year.
• TD Securities noted that: “Contributing to the overall change in August were price rises for international holiday travel and accommodation (+4.0 per cent), newspapers, books and stationery (+5.5 per cent) and alcoholic beverages (+0.8 per cent). These were offset by price falls in automotive fuel (-2.1 per cent), domestic holiday travel and accommodation (-2.0 per cent), and fruit and vegetables (-0.5 per cent).”

What is the importance of the economic data?

• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory’s metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.
• The TD Securities/Melbourne Institute Monthly Inflation Gauge is designed to “provide a timely and accurate monthly measure of inflation in Australia”. The Bureau of Statistics only releases the Consumer Price Index on a quarterly basis.

What are the implications for interest rates and investors?

• While the vagaries of the discounting cycle continues to be the key driver of such vast shifts in pump prices across the nation, motorists can still benefit. The discounting cycle provides the best opportunity to purchase fuel at or below the cost (terminal gate) price – and in turn save a few extra dollars. Between the peak and the trough in the cycle motorists could save themselves as much as 20 cents a litre.
• At present, consumer spending is firm but inflationary pressures remain well contained.
• CommSec expects interest rates to remain on hold over the rest of 2015.