Prices Go Up, Demand Falls  

Posted by Big Gav in

The ABC reports that the rising price of fuel is having an impact on demand - Oil imports fall as drivers change road behaviour. Demand clearly isn't as inelastic as some believe.

The rising cost of fuel is forcing drivers to find more fuel-efficient modes of transport or go off the road altogether, according to the latest petroleum import figures. The fall in petroleum imports is paralleled by other trends, such as growing demand for smaller vehicles, hybrids and gas-powered engines, and growing numbers opting to catch or train or take a bus.

The figures from the Australian Bureau of Statistics indicate that the rising cost of motoring is forcing people to drive less and use more fuel-efficient vehicles.

Petroleum imports in May were 28 per cent lower than a year earlier, casting doubt on the long-held view that Australians are unable to kick their "addiction" to fuel-guzzling cars. The broad numbers include a category that breaks down petroleum imports by litres, to control for price effects.

Economist Craig James from CommSec told ABC Radio's PM program the latest falls are dramatic, even though oil imports have been slowing for six months. "What we saw in May is that the amount of petroleum that we've imported is 28 per cent lower than what it was a year ago," he said. "This is the biggest fall that we've seen in over four years, and it certainly shows that the higher prices are having an impact on people's behaviours."

He said the figures disabuse people of the notion that demand for petrol was non-elastic and that people kept on demanding petrol no matter what the price. He said that confirms a basic rule of economics; that prices influence behaviour. ...

He says in a world choking on fossil fuel pollution, reducing vehicle use is not necessarily a bad thing. "The simple fact is that the world is running out of oil. We're trying to develop alternatives, whether it's bio-fuels, whether it's hybrid vehicles or the like," he said. "Prices are going to rise over time and people have to adjust to it.

"If you have the Government providing incentives, giving money back through excise or whatever it happened to be, that might be nice in the short term but over time we are going to be paying more for our petrol and we need to be adapting to those higher prices."

The ABC also reports that there is a move to more efficient transport mechanisms for goods - Rail, sea urged to replace road freight.
The freight industry is being urged to move away from road transport because of spiralling fuel prices. An International Cargo Handing Coordination Association meeting in Adelaide has been told the use of trucks for freight movement cannot be sustained.

Civil engineer and economist Scott Elaurant says, unless the world cuts its oil consumption by six per cent by 2012, demand will exceed supply. He says it could be possible to reduce demand for oil by focusing on sea and rail as freight options.

"With reasonable reliability that the supply isn't going to go up, we need to do things to bring the demand down," he said. "If we succeed in that then there's no reason the price to rise necessarily in real terms very much further than it has."

Adelaide-Darwin rail operator FreightLink says demand for its service is rising and it will start running a sixth weekly rail service across Australia from this week.

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