Under the pump

As petrol prices remain at record high levels, experts are warning lower income households and local businesses are especially being affected.

Petrol Prices in WA are at a record high. Photo: Nathan Johnston.

Dr Silvia Salazar is a research fellow with the Bankwest Curtin Economics Centre. She says a combination of factors, including the conflict in Ukraine, have led to the increase in petrol prices.

“Russia is not only one of the main exporters of oil but also of fertilisers and grain, and now with Russia out of the SWIFT bank system, a scarcity of these products is likely to put even more pressure on prices,” Dr Salazar says.

The pill will be hard to swallow especially for low-income households that spend a large share of their income on non-discretionary products such as food and transportation.”

Professor Raymond Da Silva Rosa is a professor of finance at the University of WA. He says the necessity of petrol consumption means people often have little choice but to pay such higher prices.

“In the short run, if you have a petrol car, you have to buy petrol. If you need 50 litres in your car every week, even if there’s an undersupply, you still need 50, so in the short term, the price is very responsive to mismatches between supply and demand,” he says.

Dr Salazar says the rising oil prices have the potential to cause price problems across the greater economy.

“The problem with oil is that it’s what powers companies. It’s what powers ships, and we’re in a highly globalised economy. So everything that requires transportation will see an increase in price,” she says.

Danny Arnold is the owner of Fishy Fishy, a fish and chips franchise in Perth’s southern suburbs. He says various factors have affected the way he operates his business.

“The transport costs, the trucks, there is still a backlog, but one of the main things is the shipping costs,” he says.

He also says some items have been taken off the menu to compensate for the increased costs.

“I’ve had to increase the prices of a few items. Not as a cash grab, but to compensate for the costs of the product,” he says.

Mr Arnold says the recent COVID outbreak in WA has meant more people are ordering deliveries, which could further increase operating costs if petrol prices continue to rise.

“Nobody’s leaving the house. Everyone’s getting deliveries, 85 per cent of our orders are deliveries. I’ve got 3-4 drivers per night,” he said.

Professor Da Silva Rosa believes price levels will normalise over time.

“In the long run, I’m very confident that petrol prices will fall as we move to more energy efficient cars and alternative sources of energy. But in the short run, they’re very vulnerable to fluctuations in the energy supply,” he says.

Categories: Business, General