Those living in rural areas on lower incomes will be the worst affected by rising fuel costs, as they cut back on other areas of household spending to find the money to fuel the cars on which they depend for travel, a report by Grant Thornton has found.

Rural dwellers will be more likely to decrease their consumption of other goods in order to absorb fuel price rises, with lower-income households already spending more on fuel than higher-income households to begin with, a review of academic studies within the report concluded.

One of these studies referenced in the report had found that a 10% rise in prices at the pumps led to an immediate 2.6% drop in demand, followed by an accelerated drop of around 6% in the longer term.

Price hikes

The report told of an “unprecedented” growth in fuel prices over recent years, with the pace of these price rises quickening as the economy reopened from COVID-19 lockdown and war in Ukraine led to “significant” economic disruption across the globe.

Fuel prices are now “close to record price levels” the report went on, and increased by an average of 32% in the 12 months prior to January, which is before the war-led acceleration in petrol and diesel prices began.

It was also stated that fuel price inflation had been a “key element” of broader inflation across the economy and it was concluded that fuel price hikes are likely to continue “in the short term at least”.

The report concluded that “further pressure” on vulnerable households was likely and that additional price rises would “exacerbate” existing socio-economic inequalities.

Taxes and duties

The report said that approximately 55% and 51% of petrol and diesel prices is tax, with Ireland having one of the highest levels of taxes and duties on diesel of all EU member states.

Only four countries in the EU have higher proportions of their pump costs going to the Exchequer, according to Grant Thornton.

This year’s €7.50/t increase in carbon tax also bumped petrol and diesel prices up by 2c/l and 2.5c/l respectively, although it was recognised that the Government’s easing of excise duty of 20c/l on petrol and 15c/l on diesel until 31 August helped.