Reasonings Behind Perceived Affordability of Fuel for Multiple Individuals - Because of its seemingly affordable price in comparison to other goods and services, and the widespread availability of gas stations, many individuals perceive gasoline as being inexpensive.
Fuel Costs: Why Does It Feel So Affordable?
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In recent times, the cost of filling up has dropped considerably compared to the past few years. But is fuel truly cheap? This question is more complex than it seems, influenced by various factors such as habits, perceptions, and inflation. Here's a closer look.
The Numbers
In May, the average price for a liter of Super E10 and diesel, according to data from ADAC, was 1.68 euros and 1.56 euros, respectively. Although this is less expensive than the average for the year 2024, it's more than what fue prices were in 2020, when both fuels temporarily cost less than one euro per liter. If we consider inflation, the current prices seem less attractive, with fuel prices on average more expensive than in the decade between 2010 and 2019.
Why It Feels Cheap
People's perception of fuel costs is often influenced by factors such as their memory, adaptation to new prices, and the comparison to recent highs. Furthermore, fuel costs are often less prominent in the news or our daily discussions, making the impact of increasing prices over the past decade less noticeable. Additionally, consumers are more sensitive to price changes in other goods, and perceived fuel as cheap if its price changes are less dramatic compared to other essential goods.
Inflation-Adjusted Costs
When fuel prices are adjusted for inflation, we may find that the real cost has not increased as much as the nominal prices suggest. However, over the past decade, there has been an increase in fuel prices in many regions, particularly during times of geopolitical tension or supply disruptions.
Market Benchmarks
Industry benchmarks like OPIS use retail price data and tax rates to calculate laid-in costs and profit margins. These models show that the true costs for buyers, including taxes and logistics, have generally trended upward, but fleet buyers and retailers may agree on "Cost Plus" contracts that stabilize margins and dampen volatility for customers.
The Expert's Perspective
Christian Laberer, an expert on the fuel market at ADAC, explains that fuel is not cheap, but the perception of it as such is due to our tendency to adapt to new levels. He warns that the current prices represent only a temporary relief compared to the costs we have seen recently, and there is still room for prices to drop, especially in wholesale margins and at refineries.
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Insights:
- Memory and Adaptation: Our memory and the tendency to adapt to new price levels play a significant role in the perception of fuel as cheap.
- Psychological Pricing Effects: Consumers are less sensitive to fuel price changes than those of other essential goods, leading to a reduced perception of the burden of fuel costs.
- Inflation-Adjusted Prices: In reality, the inflation-adjusted cost of fuel has increased over the past decade, but the impact of this increase may not be as noticeable to consumers due to their adaptation to the new price levels and the comparison to recent highs.
- The cost of fuel may seem more affordable due to psychological pricing effects, as consumers are less sensitive to fuel price changes compared to other essential goods like personal-finance.
- Despite the drop in fuel prices compared to recent years, when adjusted for inflation, the real cost of fuel has increased over the past decade, influenced by various factors such as industry benchmarks, energy consumption, and geopolitical tensions in regions like finance.
