Australia’s fuel spending rose 9.5% last month, exacerbating the country’s inflation problem. The increase in petrol prices comes as oil prices hit their highest levels in 10 months due to efforts by top producers Saudi Arabia and Russia to reduce supply to the market. Despite concerns about slowing demand from China and Europe, the Organization of the Petroleum Exporting Countries (OPEC) has forecast a deficit of 3.3 million barrels per day in the next quarter.
Rising fuel costs are adding to the cost of living pressure for Australian households. Commonwealth Bank data shows a 9.5% increase in spending on forecourts in August, which contributed to a 2.1% increase in total transportation costs. National Australia Bank also reported a similar increase, with its customers spending on fuel up 10.8% in the same month. These figures show a return to all-time highs in fuel spending since the Russia-Ukraine conflict.
The current average price of petrol in Australia is 192.7 pence per litre, according to the Australian Petroleum Institute. NAB economist Taylor Nugent highlighted that crude oil prices were 15% higher than the Reserve Bank expected in August, and the Australian dollar was 3% weaker. As a result, fuel costs could contribute around 0.5 percentage points more to annual inflation in 2023 compared to earlier RBA forecasts.
Higher fuel prices are expected to contribute to a 0.6% increase in the consumer price index in the United States, the largest monthly increase in inflation since June 2022. Additionally, CBA economist Stephen Halmarick, says overall consumption is declining in inflation-adjusted terms. while households face a higher cost of living. Household spending is expected to slow further throughout 2023 and 2024.
The Reserve Bank of Australia expects a slowdown in annual consumption growth, from 1.4% to 1.3% by the end of the year, which is lower than population growth. Financial conditions are expected to tighten due to the delayed impact of the RBA’s interest rate hike and the refinancing of fixed rate debt. Despite keeping rates steady since June, the RBA may face challenges as monetary policy tightens.