Australian motorists are really feeling the bite of higher petrol and diesel prices at the pump, with prices now reaching four year highs after taking off in April.
The reason for high prices is not hard to find with members of the OPEC cartel co-operating to restrict supply.
Combine that with Middle East tensions, the potential for renewed US sanctions against Iran and concerns over Venezuelan supply and you have a recipe for much higher crude oil prices.
It is particularly noteworthy coming as it does after a period of low oil prices as the world recovered from the global financial crisis and the US ramped up its oil production by developing shale fields.
Oil prices could boost wages and inflation
Perhaps surprisingly, higher oil prices could actually help to achieve two goals that the Reserve Bank of Australia has been carefully looking for quite some time now.
The first is an increase in the rate of inflation and the second is the long awaited wages growth.
On the first count, there are few things as efficient in ramping up the rate of inflation as higher oil prices.
That is due to the role of oil in transporting and delivering almost all consumer and business products, which is usually reflected quite quickly at the cash register and even faster at the petrol station.
While higher inflation is seen as a negative for business, a modest rate of inflation is good for some households because it begins to erode the size of the debt they hold in real terms.
On the second count, a series of painful cost increases when combined with high levels of household debt, falling house prices and an improving job market could be just the catalyst needed to provoke a rash of employees working up the confidence to bang on the boss’s door and demand a wage rise.
Reserve Bank wants your wages to rise
Perhaps surprisingly Reserve Bank Governor Dr Philip Lowe has long been a champion of higher wages, as part of the RBA’s central objective of enhancing the “prosperity and welfare of the Australian people.”
“People value security and one way you can get a bit more security is not to demand a wage rise,’ he said last year.
“Firms act like that and workers act like that,” he said.
Dr Lowe said he hoped that relative low jobless rates in many developed economies would “energise” labour markets and workers into demanding higher wages.
“At some point, one imagines that’s going to lead to workers being prepared to ask for larger wage rises.’’
“If that were to happen it would be a good thing.”
Well, with petrol prices remaining high, consumer debt rising, savings rates falling and company profits rising strongly, higher oil prices could be just the catalyst to provide a couple of the ingredients Dr Lowe is looking for to rebalance the Australian economy.