The great import rip-off: why isn’t everything cheaper?
Have you been getting excited at the rise of the Aussie dollar? Well, you should be. Of course, those planning an overseas trip will be particularly excited. A strong Aussie dollar gets you more foreign currency to spend on that overseas holiday. The benefits of a stronger Aussie dollar, however, should not stop there.
All Australian consumers should be getting excited as the Aussie dollar surges upwards. Why? For the simple reason that all imported products should now be much cheaper.
The economics is simple. Just like a strong Aussie dollar buys you more foreign currency when you go overseas, a strong Aussie dollar means importers can ordinarily buy foreign products at effectively lower prices.
As international transactions are usually conducted in foreign currencies such at the US dollar, it follows that as the Aussie dollar gets stronger it buys you more US dollars making it cheaper for companies here to pay for the imported products.
For those with a tight family budget a strong Aussie dollar should translate into cheaper products. That’s the good news. Now for the bad news. Consumers don’t always get the benefits that should flow from a strong Aussie dollar. As outrageous as that may sound it does happen. Simply stated Australian consumers can and do get ripped off by those companies here that either don’t fully pass on the price savings from a stronger Aussie dollar or that are slow to lower their local prices to consumers.
Before explaining this particular consumer rip off and the possible collateral damage to consumers from events leading up to a stronger Aussie dollar, it’s useful to understand why the Aussie dollar is surging at the moment. For those who follow these issues closely it would not be surprising to focus on the link between rising local interest rates and a surging Aussie dollar.
With the Reserve Bank giving big hints of a possible hike or hikes in the official interest rate in coming months, it’s clear that Australia will have some of the highest interest rates in the developed world. This will be magnified by the dominance of the 4 major banks allowing them to push interest rates beyond the Reserve Bank hikes.
Not surprisingly this anticipated chain of events is seeing an influx of foreign capital chasing the robust Australian interest rates. As the Aussie dollar increases speculators also see an opportunity to make big money trading in our currency. With international funds having billions of dollars to play with they can easily move lots of money into and out of Australia knowing that changes of just a few cents on the Aussie dollar can translate into a small fortune.
So why should we be concerned at what the Reserve Bank decides regarding the official interest rate? To begin with, speculation regarding the Reserve Bank’s stance on the official interest rate affects the Aussie dollar and can lead to speculators “playing games” with the Aussie dollar. These games may work in the consumer’s favour if the Aussie dollar goes up (assuming, of course, that the benefits are passed onto consumers), but consumers can get burnt if the Aussie dollar falls. Just ask Aussie travellers how much they lost when they were stuck overseas last time the Aussie dollar dropped suddenly.
More importantly, any Reserve Bank decision in coming months to push up the official rate will obviously lead to higher local interest rates. And knowing that the dominance of the 4 major banks makes them a law unto themselves, it would not surprise anyone if the majors push up their lending rates over and above the rise in the official rate.
Clearly, the Reserve Bank needs to think long and hard before they move interest rates as any rate change not only allows the major banks to play games with lending rates, but it allows the international speculators to play games with the Aussie dollar.
With the danger of local interest rates being pushed up in coming month courtesy of the Reserve Bank and the dominance of the four major banks it becomes even more critical that the benefits of a stronger Aussie dollar are quickly and fully passed onto consumers.
Here the point is very simple. As the Aussie dollar surges importers should increasingly get a financial windfall on the products they import. Of course, there may be time lags before those windfalls are fully realised, but don’t let importers fool you into thinking that any such time lags are always “significant.” They would say that for the simple reason that the longer a local seller delays passing on the benefits of a stronger Aussie dollar the more of a financial windfall the seller can pocket at the expense of consumers.
We are already seeing local oil companies playing games with petrol prices. With the Singapore benchmark price for refined petrol used to calculate local prices having fallen significantly in recent weeks primarily due to the stronger Aussie dollar we should be seeing large falls in retail petrol prices throughout Australia.
Yes, we saw retail petrol prices plunge in city areas for a couple of weeks, but then two things also happened. First, prices in regional areas stayed up when they should have started to fall. The Singapore benchmark price for refined petrol has been falling and the Aussie dollar has been climbing for weeks so the “time lag” excuse wasn’t going to explain away the rip off this time. In short, regional petrol prices should have been falling. But they weren’t, for example, in regional NSW and in the Northern Territory.
Second, the oil companies and major petrol retailers like Coles and Woolworths started pushing up average retail prices despite the Singapore benchmark price continuing to fall as the Aussie dollar gained ground. Obviously for the oil companies and major retailers acting as a cosy club has its financial rewards in helping keep retail prices and margins higher than they should be.
As the petrol rip off continues because of the failure by the oil companies and the major retailers to quickly and fully pass on the benefits of a stronger Aussie dollars, the silence from the ACCC, Federal and State Governments has been deafening.
A rip off is a rip off irrespective of your politics. That’s why governments of all political persuasions need to inject more competition into the petrol industry. And that’s why the independents and the Greens are so important to the new “political paradigm.”
Whether it’s the Federal Labor Government or the WA Liberal Government, more can and should be done to ensure that the oil companies and the major retailers are more transparent and accountable for their pricing behaviour. Until we have greater transparency and accountability, especially at the wholesale level, motorists will continually to be denied the benefits of a stronger Aussie dollar.
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