Fuel for thought: Petrol prices reach three-year highs as businesses face Christmas crunch

Just as retail and tourism trade heats up ahead of Christmas, along comes a spike in petrol prices to pour fuel on the flames.

Commsec’s latest petrol price report shows the national average retail price now sits at 143.2 cents a litre, up seven cents on last week. And it’s metropolitan prices spiking the most, up 9.8 cents last week to reach 144.6 cents a litre.

“The machinations of the petrol pricing regime being what they are – it’s not surprising seeing the increase before Christmas before people go away,” says Victorian Chamber of Commerce and Industry chief economist Steven Wojtkiw.

“Add petrol to electricity and water – and you’ve got business budgets under stress.”

For retailers, the price hike comes as a double whammy smack bang in the silly season. Not only is it a potential drag on their customers’ discretionary spending, it also puts a squeeze on their own distribution, says Wojtkiw.

“It increases the transportation costs to get goods in and around markets, adding to the amount that could otherwise be going to more product or service purchases.”

Tourism, too, could really feel the pinch of motorists being slugged at the bowser.

“It works against people going away for day trips. If tourists are reliant on a car, then that adds to the cost of holiday travel and that could work against those in industry,” Wojtkiw says.

How, then, to bear the brunt of it?

“It gets back to good business practice. Watch your direct costs – be it labour, materials and other input costs including fuel – and also your indirect costs. Know what your competitors are doing and what your customers want,” he says.

Wojtkiw also urges retailers not to keep their inventory levels too high and to watch their margins and pricing very closely.

“There are substantial pressures to be discounting, but it can’t be at such a level that erodes profit.”

Perhaps, then, ‘tis the season to be more shrewd than jolly after all, with small businesses warned earlier this year that December and January are times of great vulnerability for businesses as invoice payments slow down.

With any luck, however, petrol prices could down in the new year.

“One would hope we have the peak of the price increase over the holiday period, hopefully followed by a plateauing out,” Wojtkiw says.

Meanwhile, the Australian Competition and Consumer Commission is focused on competition in the petrol sector, with CommSec highlighting the watchdog’s announcement last week that it would oppose BP’s proposed $1.75 billion deal to buy more than 500 Woolies petrol stations.