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Will falling fuel prices translate into lower grocery prices for consumers?

The leading supermarket chains, which blamed rising fuel costs for price hikes, haven’t yet lowered grocery prices, and are in no rush to do so

Motorists are beginning to benefit from cheaper fuel, but how long will it take for supermarket prices to follow? Photograph: Shutterstock

The price of a litre of both diesel and petrol at a fuel station in Cabra last Thursday evening was about €1.55 or 50 cent less than some periods last year.

The last time petrol was priced that low, according to figures from the AA, was August 2021, while a litre of diesel cost about €1.55 in October of the same year. The pumps.ie price comparison website, meanwhile, put the average price of both petrol and diesel at about €1.62.

In June of 2022, a litre of petrol was priced at €2.13, while diesel reached a high of €2.05 the same month.

The dramatic fall in prices since then – if sustained – will amount to big savings for motorists over the next 12 months.

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The average motorist drives 17,000km annually with the average petrol car covering about 12.5km per litre and about 17km per litre of diesel. Based on these figures, the annual cost of driving when petrol was at its highest was €2,896. Based on a price of €1.62 per litre it would fall to €2,203, a reduction of €693. The annual cost of driving a diesel car based on the prices at their peak was €2,050 compared with €1,620 at today’s prices, a reduction of €430.

When the excise cuts introduced by the Government early in the cost of living crisis – worth between 15 and 20 cent a litre – start to ease from early summer, prices will climb, but the tax increases may be offset by further fuel price falls on global markets.

Paddy Comyn of the AA says he has been surprised by the trajectory of prices in recent months. “I was jumping up and down like Nostradamus warning people the price of diesel could skyrocket and it didn’t happen. It’s gone down significantly and we are at pre-Covid prices.”

Kevin McPartlan of Fuels for Ireland is reluctant to make pricing forecasts, but suggests, “things seem to be stable and we don’t see anything coming down the line that would have an obvious dramatic impact. Getting the bunting out to celebrate might be a little bit premature, but I wouldn’t be at all pessimistic at the moment”.

Volatility remains a feature of the market, as evidenced by the wildly fluctuating price of diesel compared to petrol.

In 2021, a litre of diesel was about 10 cent cheaper than petrol, while last October it cost 20 cent per litre more. Today, the two fuels cost much the same.

The Russian invasion of Ukraine is behind the oscillating prices, says McPartlan. Many refineries in western Europe were designed to process petrol, while refineries in the east leant towards diesel. “The EU is a net exporter of petrol and a net importer of diesel,” he says. “Russia has been a big exporter of diesel and when the war began, people wanted to stop doing business with Russia, so the impact on diesel prices was greater. Now, the world has had a bit of time to get used to the new reality and refineries in the West have made changes to produce more diesel than they used to do.”

Businesses benefiting

While the fall in the price of motor fuel has had an obvious benefit for motorists, it has also benefited businesses. For much of last year, retailers blamed the high cost of transportation for at least some price hikes imposed, increases that saw grocery inflation top 16 per cent.

The cost of transportation has certainly fallen, confirms Eugene Drennan of the Irish Road Haulage Association. A typical articulated lorry has capacity for 10,000 litres of fuel. With prices falling by at least 40 cent, the savings on a full tank are substantial.

But when can consumers expect to see such savings replicated on supermarket shelves? “There’s always going to be a lag on those things,” one industry source says. “When diesel prices were going up 10 cent a litre regularly, the price of baked beans in supermarkets wasn’t going up as dramatically as a result, so they won’t fall as fast either.

“But if the retailers can slice a little bit off the wholesale cost, I would imagine they would and they might ride the wave for a little while, for as long as they can get away with it, but the minute the first breaks, you would expect them all to break.”

Professor Edgar Morganroth of DCU’s economics department warns that, while inflation may start falling, prices may not fall as fast as consumers hope. “You’ve produced a packet of biscuits now that might actually not find its way to the shelves for another couple of weeks, but what goes into it, say wheat or whatever, well, that was produced last year, you know, so it takes a bit more time for that to feed its way through. And you would hope that, at the very least, that would stop inflation. But stopping inflation doesn’t mean that prices are going down.”

The Irish Times contacted the State’s five leading supermarket chains asking when consumers might see falling fuel prices translating into lower grocery prices.

A spokeswoman for SuperValu said it was “working hard with our suppliers, who are still faced with the impact of high input costs, to ensure we continue to deliver the best value and quality Irish products for our customers”.

Lidl said that, “as with all retailers and businesses, the cost of living crisis continues to have a significant impact on our operations as a result of not only the price of fuel, but many other factors, for example, the substantial rise in the cost of labour and reduced harvests”.

Aldi did not address the fuel issue, saying it was “committed to keeping our prices as low as possible [and] against the backdrop of year-on-year inflationary figures, we continue to work hard to shield customers from the effects of price increases on all input costs”.

Tesco said its “pricing policy is always under review and we work collaboratively with our suppliers to minimise impacts to our customers”.

Dunnes Stores did not respond.