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Thursday, March 23, 2023

Consumers: Fuel prices normalize and act as a brake on inflation

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A year ago, fuel prices shocked German motorists, now they are acting as a brake on inflation – simply because the situation has normalized somewhat. And they could go down further.

A year after the extreme increase at the beginning of the Ukraine war, fuel prices have partially normalized. Although they are still at a high level in a long-term comparison, they are likely to put the brakes on inflation in the coming months. Because what is currently being paid at the pumps almost seems like a bargain compared to the values ​​a year ago.

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In March 2022, all fuel price records were shattered under the impact of the Ukraine war. According to ADAC figures, on March 7th the value of 2 euros per liter of Super E10 and diesel was exceeded for the very first time on a nationwide daily average. On March 10th, diesel reached its all-time high of EUR 2.321 per liter on a national daily average. The E10 record was reached on March 14 with 2.203 euros.

Mathematically, a dampening effect

Prices are currently well below that. In February, both premium E10 petrol and diesel cost 1.754 euros per liter on a nationwide monthly average, as determined by the ADAC. Should prices be similar in March, diesel would be around 18 percent cheaper and premium petrol almost 15 percent cheaper than in the same month last year.

That would be so clear that it would even be reflected in the inflation rate. After the recently introduced new weighting of the consumer price index, there is a calculated dampening effect of almost half a percentage point.

ADAC fuel market expert Jürgen Albrecht says there has been a gradual return to normal for petrol since the fall. “If you compare them with the oil price and the euro exchange rate, they are still rather high, but the decoupling with extreme prices is over.” However, diesel is not that far along, even if the fuel has been cheaper than petrol at least since mid-February. “But the price difference between diesel and petrol is still too small,” emphasizes Albrecht. “There’s even more air in here than with petrol.”

Overall, Albrecht still sees downward potential for both types of fuel. “Unlike in parts of last year, fuel prices are again more closely linked to the price of oil,” he says. “I don’t think it’s very likely that it will rise sharply. If the competitive forces take effect and nothing out of the ordinary happens, fuel could become cheaper in the next few months.”

Oil prices determine the second half of the year

This applies above all to diesel – on the one hand because the prices there are still too high in relation to the tax burden, on the other hand because the end of the heating season often makes diesel a little cheaper. However, the price reductions would have to be forced through competition, emphasizes Albrecht and calls for deliberately cheap refueling. “The mineral oil companies will not give up their margins voluntarily.” It is still difficult to predict how fuel prices will continue in the second half of the year. It will probably depend primarily on the price of oil – as before.

Incidentally, despite the high prices, no less fuel was consumed in 2022 than in previous years. The annual figures for fuel deliveries recently reported by the Federal Office of Economics and Export Control (BAFA) even show an increase for petrol compared to the pandemic years 2020 and 2021. The level for diesel is largely unchanged.

In the case of petrol in particular, the consequences of the relaxation of the corona virus and increased travel have evidently more than offset the effects of the high prices. Before Corona, however, the consumption of both fuels was significantly higher.

Source: Stern

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