Retailing doesn't work like that and the poor need price fluctuations for bargain shopping

Tonight’s Channel Nine News credited “economists” with saying that "Capping [petrol] price rises would lead to cheaper petrol, especially in the short term".

One of these economists, John Quiggin said: “It would see a lower price on average through the course of any given cycle”. Pascalis Raimondos qualified this: “In the long run I'm not sure because of the supply issues that would play into consideration.”

In fact, in neither the short-, nor the long-run, would the state government’s proposal to cap price rises to 5c per day lead to lower average prices.

According to Graham Young, Executive Director of the Australian Institute for Progress, these economists need to spend time in a retailer of any sort.

“In the first place, businesses make their money off the average price. Their profit and loss accounts, by definition, show their sales as the sum of the average price, and their profit is that sum less the sum of the average cost of retailing it.

“By capping the increase in the price of petrol to 5 cents per day the government will slow the pace at which the price can rise, but it will have no impact on the average price the retailer needs to make a profit.

“Capping the price rise will smooth out the price fluctuation in that it will take 4 days to raise the price by 20 cents, rather than the 24 hours it can take at the moment.

“That will probably mean that on the other side of the curve it will take longer to come down, and it may in fact stay up longer, but on average, it will make no difference to the average retailer, or the average motorist.

“Without additional competition the existing market will sort itself out to earn pretty much what it is currently earning.”

Mr Young said that while it will make no difference on average, not all purchasers are average and poorer Queenslanders could end up paying more because it may limit the number of days where the price is very low.

“The price cycle acts as a tax on those consumers who can afford to pay more. If you are less price sensitive you are more likely to pay top dollar for your petrol because you will just pull into the station, no matter the price.

"The fact that you pay a higher price means that the retailer can afford to offer a lower price to squeeze all the demand out of the market - high prices for some lead to lower prices for others.

“If you are price sensitive you will tend to try to fill-up when prices are at their lowest, and only top-up enough, when they are high, to get through to a low spot. Capping price rises will make this harder.”

Mr Young said there are plenty of apps for the fuel frugal to use to track petrol prices.

“The one I use tells me I can buy U91 for 189.9 cents per litre in my vicinity, and I know I can get a 4 cent discount on that.

“That might entice me to fill-up my half tank now, or looking at the graph of prices, which suggests they have some way yet to fall, I may wait another week and fill it right up.

“Either way, a price cap is more likely to hurt me than to help me, and no politician or economist can show otherwise.”

For further information contact Graham Young on 0411 104 801 graham.young@aip.asn.au.