Weaker dollar a wowser at the bowser
And with some experts predicting the dollar has even further to fall, it may be hard to avoid paying more for petrol over the next few months.
Since hitting US$1.05 in April, the Aussie dollar had plummeted to about US92¢ when Money went to press. As a result, the Aussie-dollar price of fuel in Singapore - which sets retail prices - recently spiked to a five-year high. This is because fuel is traded in US dollars and these have recently become a whole lot more expensive for Australians to buy.
It normally takes about 10 days for these increases to be passed on to customers, so experts believe national bowser prices could soon also rise to five-year highs above $1.50 a litre. If the economists who are predicting further falls in the dollar are right, the increase could be even greater.
To illustrate just how much difference the dollar is making, analysts at CommSec said the pump price would have actually fallen slightly in recent months if the currency had remained at its April level of US$1.03.
"So what?" you might ask if petrol isn't a big expense for you. But as well as being an annoyance for drivers, higher oil prices can have a significant impact on the economy's overall health.
After servicing a mortgage, filling up the car is one of the biggest regular expenses for many households. Economists have estimated average use of 35 litres a week, or about $53.
It is also something that's very hard to avoid - people who need to drive to work can't cut back on petrol use just because prices have gone up. Therefore, big rises in the price of petrol can lead consumers to cut back on spending on other non-essential goods. This suggests more bad news for retailers.
And even if you don't drive a car, higher petrol prices can be passed on through increases in the cost of transport or things that need to be transported long distances, such as fresh food. In short, fuel is used in a large variety of goods and services, so it's hard to avoid these price rises.
Against the increases, however, it's worth remembering that pump prices are still well below the $1.65 record reached in 2008. Since then, wages are also up 14 per cent.
Economists also think the weaker dollar is doing more good than bad for the economy as a whole because it makes Australian exporters more competitive.
While frustrating, higher fuel prices caused by a weaker dollar are outweighed by more positive effects elsewhere.
Wholesale prices
Frequently Asked Questions about this Article…
Fuel is traded in US dollars, so when the Aussie dollar falls (for example from around US$1.05 in April to about US$0.92), the Aussie-dollar cost of imported fuel rises. That pushes up the wholesale price set in regional hubs such as Singapore, and those higher costs are then passed on to Australian pump prices.
Yes. The article notes analysts and experts expect the Aussie-dollar price of fuel to have spiked to a five-year high in Singapore, and with about a 10‑day lag for wholesale moves to reach bowser prices, national retail petrol could soon rise to five‑year highs above $1.50/litre — with potentially larger increases if the currency falls further.
According to the article, it normally takes about 10 days for increases in wholesale fuel costs to be passed on to retail customers. That delay reflects supply and pricing cycles before pump prices are adjusted.
Economists estimate average household petrol use at about 35 litres a week, or roughly $53. Because filling up is one of the largest regular expenses after mortgage payments and is hard to cut back on, higher petrol bills can force consumers to reduce spending on non‑essential goods — a trend that can hurt retailers and broader economic activity, which investors should monitor.
Yes. Even non‑drivers feel the impact because higher fuel costs increase the price of transporting goods (including fresh food) and services that rely on fuel. Since fuel is used across a wide range of goods and services, those higher costs can be passed on to consumers more broadly.
While pump prices are rising, the article points out they are still well below the record peak of $1.65 per litre reached in 2008. It also notes that wages have risen about 14% since that peak, providing some historical context for affordability.
No. Economists quoted in the article argue that, although a weaker dollar raises fuel and some import prices, it also makes Australian exporters more competitive. Overall, the positive effects for exporters can outweigh the negative impact of higher fuel prices on consumers.
Everyday investors should keep an eye on the AUD/USD exchange rate, international fuel price indicators (such as prices set in Singapore), the typical 10‑day pass‑through of wholesale changes to pump prices, and retail/consumer spending trends — since shifts in these areas can affect household budgets, retailer performance and broader economic outcomes.
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