Woolworths CEO Roger Corbett reckons last month’s spike in
petrol prices caused the biggest big impact on discretionary spending he’s ever
seen in such a short period – adding credence to plenty of anecdotal evidence
about small retailers feeling a definite petrol squeeze.

But is the sky falling? Nah. Are some parts of the economy being hurt more
than others? Yeah. Should we be concerned? Only if you’re relying on one of
those parts.

Corbett brings some balance to the story by still predicting
reasonable growth for Woolworths. The implication is that the petrol price
impact spike is temporary – prices ease back a bit and people adapt.

There remains no sign that present oil prices are high
enough to cause recession and most of the speculation about inflation and
interest rate threats is rubbish.

As Duke Energy’s CEO (and the former BHP
chief) Paul Anderson says in the current edition of Eureka Report, while predicting oil prices will fall back to the low US$40s, things are never
as bad as you think they are and they’re never as good as you think they are
either.

To dispatch the R word threat first, AMP chief economist Dr
Shane Oliver has done as neat a job as anyone in putting the oil price in
perspective. OECD countries use half as much energy per unit of GDP now as they
did in the last oil shock, the oil price rise has been more gradual than the
previous shocks and the real price of oil is still well below those 1970s
peaks. You can read his August 30 paper here.

The discretionary spending hit is real though – if you’re
part of the majority who spend whatever money you have and you have $10 less in
your wallet after filling up the car, that discretionary ice-cream, chocolate
bar or fruit juice doesn’t get purchased, particularly when you walk into the
service station shop to pay for the petrol. The overall economy still goes
round though – the petrol company and the government pick up more money at the
confectionery makers’ expense and we only “lose” a relatively small amount, the
actual bit extra that imported crude costs.

The psychological impact can be more important though. The
petrol price shock combines with some of the sillier headlines about inflation
and interest rate threats to cause a little more watchfulness about unnecessary
spending. Given Australia’s
debt binge, that’s not entirely a bad thing.

Read more on the website.

Peter Fray

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