Whilst it’s common knowledge that the cost of living is at the highest rate in 40 years, new research reveals that car expenses are substantially higher than they should be when inflation is taken into account.
To build a broader picture of rising costs, the personal finance experts at Ocean Finance conducted an in-depth study to reveal how much the price of a car and petrol has increased in the past 25-50 years – and they found that filling up a car is a whopping £36.60 MORE expensive than it should be when compared to the rate of inflation.
Massive increase in fuel expenses
When petrol and diesel prices peaked at the end of June 2022, they had reached £1.91 per litre of unleaded petrol and £1.99 per litre of diesel. That’s an increase of 209% and 219% respectively since 1997.
When these figures are compared to the rate of inflation, today’s fuel far exceeds the prices we’d see if they had risen at the same rate as general inflation. Back in 1997, fuel prices were fairly evenly matched, with unleaded petrol costing about 61.82 pence per litre on average, and diesel costing only a fraction more at 62.47 pence per litre. If those prices had risen in line with inflation over the last 25 years (3.03%), unleaded petrol would cost about £1.30 per litre, and diesel would cost £1.31.
Whilst this 61-pence difference doesn’t seem like a lot, it would cost an additional £36.60 to fill a 60-litre car!
Car prices have increased by 821% since 1976
Ocean Finance looked at the price of one of the UK’s bestselling cars, the Ford Fiesta, and tracked the cost of a basic model since its launch 46 years ago.
At the time of its release, a Fiesta was valued at £1,856. Nowadays, it’s still good value for money but will set you back £17,905 for the latest model.
Based on average inflation of 5.03% per year between 1976 and 2022, a brand-new Fiesta could be costing you £15,422. This means we’re paying £1,672 more than inflation-level prices. But, considering how much car technology and safety have advanced over the years, this may not be such a bad deal…
Top tips for saving money on your petrol prices
To help cut down the cost of your fuel, the personal finance experts at Ocean Finance have shared their top tips:
- Never top up your fuel at a motorway service or near a motorway exit
Even though fuel prices have risen across the board, not all petrol stations are charging the same amount. As a general rule, petrol stations at motorway services, or near motorway exits, tend to be the most expensive. This is because the operators know they have a captive audience: if you’re running low on fuel, better to refill while you can than risk your tank running dry before you find a cheaper petrol station to use.
- Know where to find the cheap petrol
To find the petrol station selling the cheapest fuel in your area, PetrolPrices is a handy, free tool to use. Simply sign up, enter your postcode, and you’ll be able to see the nearest and cheapest places to refuel. They also have an app so you can check your options on the go.
- Never slam your brakes as this uses more petrol
When it comes to driving around, smooth and steady is the way to go, according to the AA. For the most efficient driving style, avoid flooring it or slamming the brakes on – gentle use of your accelerator and brake pedals is the most economical. You can also try switching to a higher gear at a lower speed than you usually do. Since 2014, new car models have included a “gear shift indicator” as standard, that lights up when it’s fuel-efficient to switch it up a gear. Handy to have!
- Consider carpooling
If you commonly drive the same route at the same time as a colleague, parent, or friend who lives close by, then taking turns to give each other a lift means you’ll use less fuel than if you drive separately. Some companies run their own carpool schemes to help you find people you could share lifts with. You may even get perks like priority parking spots close to the entrance of your workplace!
What is inflation?
In simple terms, inflation is the word used for the general increase in the price of goods and services, and how this reduces the purchasing power of money.
The Bank of England has set a 2% target for annual inflation, which would deliver a slow and steady increase in prices each year. However, the actual rate varies depending on the economic climate. In July 2022, the rate of inflation was 10.1%, a 40-year high. It is currently expected to peak at 13% towards the end of 2022.
How is inflation calculated?
In the UK, the official measures of inflation are calculated by the Office for National Statistics. They do this by checking the prices of over 700 things that people commonly spend money on, from small items like loaves of bread to bigger purchases like holidays.
The prices of these items are used to create indices such as the Consumer Price Index (CPI) and the Retail Price Index (RPI), which are then compared to the previous year’s data to measure inflation over a set period.