With the Brent Crude oil price now breaking through the $125 a barrel mark, Australian drivers are bracing for the highest petrol prices seen in over a decade.
Russia being one of the biggest oil exporters in the world, further sanctions are expected to haemorrhage global oil supply as indicated by the Brent futures price which reached almost $140 a barrel.
The general consensus is that on average a $1 increase in the oil price will result in a 1 cent per litre increase in the petrol price. There is a lag of a few weeks for these drastic prices to be reflected in the petrol price, therefore, we are expected the average Australian petrol price to breach $2.20 a litre in the coming weeks.
How does the Oil price affect food prices?
While the price of oil and consumer goods may seem unrelated, there is a direct correlation between the two. This is due to a economic term known as cost-push inflation. This essentially means if the cost of a good increases the price is pushed up onto customers.
Oil in particular is an input for many goods in the form of transport across the globe. Therefore, high transport goods such as fresh food, livestock etc. will also become more expensive. This is quite easily displayed in the wheat futures index (ZW1) which has risen over 70% in the last month.
Investors and consumers alike will be watching the oil price going forward not only for the sake of their cars but also their weekly groceries.