How skyrocketing fuel costs could fan the flames of inflation

Australia’s high rate of inflation is coming under more pressure as big transport companies including Uber, Qantas and Australia Post increase their prices in response to rising fuel costs.

The flurry of increases in consumer prices and payments to drivers is stoking fears that other companies that rely on the firms for deliveries could be forced to raise their own prices after the war in the Middle East put a rocket under the cost of oil and other key materials used by businesses across the country.

But some companies, such as Uber Eats rival DoorDash, have vowed to absorb the cost of payments to their drivers to cover fuel while the e-commerce giant Amazon will not say whether it will raise prices to cover the assistance it is providing to drivers.

The spate of price rises in the transportation sector is adding to the pressure on Australia’s already high rate of inflation. Other transport firms that have raised prices include Virgin Australia and ride-share firm Didi, and there have been predictions inflation could surge past 5 per cent by June as more firms raise prices.

Richard Holden, scientia professor of economics at the UNSW business school, said companies raising their prices in response to the cost of oil could flow into higher inflation in several ways.

It would directly affect the cost of these companies’ goods, and then he said there was also a question over whether these companies’ products were a cost for other companies. Further, some businesses might see it as an opportunity to raise prices so as not to “miss their chance”.

“It’s clearly going to put upward pressure on an already high rate of inflation,” Holden said.

It’s not only oil costs that have exploded since Iran closed the Strait of Hormuz, a vital shipping route.

AMP’s deputy chief economist Diana Mousina said other prices of commodities – including gas and fertiliser – had also been pushed higher by the Middle East war, and these were all likely to feed into higher inflation across the economy.

“It’s a problem right now because we already have elevated inflation; this is adding more pressure to it,” she said.

Mousina said price rises, as well as raising companies’ input costs, could also feed into higher “inflation expectations” – a dynamic the Reserve Bank is keen to avoid.

“If people expect inflation to go up, maybe they are going to demand higher wages, or businesses might seek to increase their prices,” she said.

Transport is one of the most exposed industries to soaring fuel costs in the economy, and this week the Transport Workers’ Union and the Australian Road Transport Industrial Organisation arranged a hearing on how these costs could be passed on.

They say thousands of truck owner-operators and multiple other delivery drivers cannot pass on the huge increases in fuel costs caused by the war, and face being put out of business.

TWU lawyer Lorraine Biviano told Fair Work Commission vice president Mark Gibian at a hearing on Wednesday that many operators were facing significant challenges. “Without some urgent steps, operators who are already hurting, will continue to hurt,” she said.

The union and the transport group want the commission to establish an industry-wide review mechanism based on weekly fuel price rises to order the companies that engage trucking services to compensate drivers.

Road Freight NSW chief executive Simon O’Hara asked the commission to take practical and proportionate steps to assist truck operators to keep going.

“It’s crucial that rising costs are shared fairly across the entire supply chain, and that truck operators aren’t hung out to dry. They simply can’t continue to absorb skyrocketing costs,” O’Hara said.

But Brent Ferguson, representing the Australian Industry Group, National Road Transport Association, South Australian Road Transport Association, and Bega Group, said “there isn’t a clear one-size-fits-all approach” to fixing the issue.

Many businesses had already built fuel price rises into their contracts on a monthly, half-yearly or annual basis, others didn’t break out the cost of fuel in their dealings and there were concerns about disturbing existing arrangements that had already priced in changes, he said.

In a submission to the hearing, Amazon said it regularly reviews costs for its flex delivery partners and makes adjustments in locations where fuel prices are having the biggest impact.

“For third-party carriers, which are transportation companies moving packages between locations or delivering packages, Amazon also provides fuel cost assistance through contractual arrangements and is already working with the suppliers directly to help them manage those recent changes,” its lawyer Erin Hawthorn said.

“It is continuing to closely monitor this situation and will consider future adjustments on an as-needed basis,” she said.

DoorDash has introduced a temporary fuel relief program to run from March 21 to the end of April to help its delivery drivers, whom it calls its “dashers”.

The weekly payment, between $5 and $25 for drivers who travel more than 150 kilometres up to 501 kilometres, “provides immediate financial relief to dashers”, the company said.

The delivery firm will absorb the extra costs and not pass them on to drivers, but also said it won’t pass the cost to customers via higher prices.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.