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Petrol price volatility hits the poor hardest

Opinion

Hand-wringing over the high cost of petrol does little to help those hardest hit by price volatility – but there are things governments can do to reduce cost-of-living pressures, writes SACOSS CEO Ross Womersley.

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At the end of the September quarter, the price of petrol in Adelaide had risen 30 per cent over the past two years. While the price has gone up and down since, the volatility makes it hard to budget for, and sharp price hikes create hardship for those without the ready cash to cover the increases.

SACOSS’s latest Cost of Living Report, published today, shows the average SA household now spends $50 a week on fuel.

But while we all feel the pinch when prices go up, the groups hit hardest are always people on low incomes and those in regional areas.

Households in the lowest income bracket spend significantly more as a proportion of their income on petrol than those on middle or higher incomes. And households outside Adelaide spend on average 11 per cent more on petrol than those in Adelaide.

Recent public concern about “historically high” petrol prices is understandable. But digging deeper into the issue of affordability, the story gets complicated quickly.

Petrol prices are hard to track because of huge volatility. For example, our report shows that a recent Adelaide six-week cycle showed a 27c-per-litre gap between peak and trough prices.

The issue is not just about prices, but also fundamentally about income

And any longer-term analysis is dependent on the starting point. For instance, a 10 year stretch from the September quarter in 2008 shows prices increasing at below the general inflation rate – meaning that petrol is significantly cheaper in real terms now than then. But move the start point by just one quarter and that result disappears, with price rises in line with inflation.

Another complexity is that the ABS Household Expenditure Survey data shows that average expenditure on petrol by SA households decreased in real terms between the 2009/10 and 2015/16 surveys, but expenditure actually increased as a percentage of household income. Here, the issue is not just about prices, but also fundamentally about income.

For households reliant on low wages or casual work, where people are working more hours to maintain their real incomes, or for anyone searching for work and reliant on social security payments like Newstart which have not risen in real terms in more than 20 years, the cost-of-living pressures are very real.

This points to some ways to address high prices in circumstances where the key drivers of recent rises – international market prices and the low value of the Australian dollar – are not directly in the control of Australian governments.

By contrast, governments can have a very direct impact on incomes for people struggling to get by. They can boost the minimum wage, enact changes to industrial relations regulation, or increase the social security safety net by raising the rate of Newstart and other income support payments.

Ultimately, campaigning to ensure these income measures are being addressed for people in our community having the hardest of times seems a much more effective response to cost-of-living pressures than simply hand-wringing over price increases.

Ross Womersley is CEO of the South Australian Council of Social Service (SACOSS).

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