Economists at NatWest bank have warned that the cost of running a car is set to rise as ‘the journey through the consumer sweet spot comes to an end’.
The money experts have been looking into the cost of motoring and found that, although headline inflation is currently low, automotive expenses are set to soar in the near future.
Looking at consumer price data from the Office for National Statistics, Natwest’s economists have devised their own measure of motoring-related good, services and expenditures – described as the ‘Petrol Heads Index’ (PHI).
They found that, following the UK recession, the PHI jumped by more than 17% between 2009 and its peak in 2012. This was largely caused by rising fuel prices, triggering a change in motoring behaviours as many of us reduced our mileages.
However, this trend has recently been reversed. Falling fuel prices have contributed to a decline in the PHI by 4% in 2015, and 2% so far this year. This means the PHI is at its lowest level since 2009.
NatWest senior economist Richard Ramsey said: “The fall in fuel prices had acted as a tax cut and a much needed fiscal boost. As motorists began refuelling their cars, the decline in prices was helping to refill their disposable incomes and fuelling a recovery in consumer spending.”
While the cost of fuel has decreased, other motoring costs have been steadily increasing. Repair and maintenance bills have increased by more than 2% in the last year and are 10% higher than in 2010.
Insurance prices are also on the increase – with premiums up by more than 11% in the 12 months to March 2016.
New car prices in the UK rose by 2% last year, although falling interest rates on car loans could explain the increase in new car registrations. Secondhand car prices, meanwhile, are falling at a rate of 6%.
Ramsey added: “Declines in the PHI are likely to be seen only in the rear view mirror, as the journey though the consumer sweet spot comes to an end. With some warning lights flashing on the dashboard, looking ahead prices are more likely to rise than fall.”