One thing we have learnt this week – energy costs

up and down arrowsWhat goes up comes down more slowly, at least it does when its related to energy costs.  As the oil price has plunged a variety of different sectors have how can I put it, been slow to pass on the oil price fall.

Looking at the UK (and I would be interested to know of experiences of those in other countries) sector by sector the picture is as follows;

Petrol/diesel/heating oil

The price falls in oil have have been passed on here quite rapidly.  The falls are so large in heating oil, one representative of the heating oil industry was claiming it was now cheaper than using mains gas.  The fall in petrol prices is said to be officially about 10% but from a peak of nearly £1.50 (more than that in rural areas) the price is now just above £1 that seems more than 10% to me.  So falling energy costs are being passed on here.

Food

As we have blogged before food is very oil and gas dependent.  Food costs have rocketed over the last 5 years.  Prices of food are now showing modest falls the official figures are just under 2% over 2014 but individual foods have showed much larger falls.  Tomatoes are down about 10% and wheat 22% (although part of that can be explained by a good harvest).  Food costs still remain much higher than 5 years ago and will have to fall a lot further to get back to those levels.

Transport

Airlines have yet to pass on the oil price fall.  Train and bus fares are continuing to climb.  On the latter two this more to do with regulation, subsidy cuts and investment in the rail network.  Little sign of falls in energy costs being passed on here.

Electricity/gas

Almost continuously in the news over the last few weeks energy suppliers have cut gas prices between about 1.9-5.2% but not immediately, the earliest being the end of February.   Electricity prices have not been cut at all.  In a way this is not surprising the energy companies have minimising gas use due its relatively high costs.  Nevertheless some electricity cost falls should really be due.  The switching sites say the reductions should have been 10%.  So no sign of falls in energy costs being fully passed on here.

What goes up does come down but not as fast as it goes up in the first place -at least when it comes to energy costs!  All this is enough to make inflation negative in the EU and possibly the UK, something I’ve never seen.

Neil

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