Rising cost of fuel and groceries fall under spotlight

Families looking for support during the cost-of-living crisis will be reassured by action being taken to help control the price of road fuel and groceries.

While many of the factors driving price increases are not competition related, the Competition and Markets Authority (CMA) has a vital role to play in giving consumers assurance that competition in critical markets is working well, so they can exercise choice with confidence.

Sarah Cardell, Chief Executive of the CMA, said: “The rising cost of living is putting people and businesses under sustained financial pressure. The CMA is determined to do what it can to ensure competition helps contain these pressures as much as possible.”

Road fuel

The CMA has provided an update on the Road Fuel market study it began last year.

While the evidence shows that the majority of fuel price increases are due to global factors, such as the Russian invasion of Ukraine, indications are that higher pump prices cannot be attributed solely to factors outside the control of the retailers. Based on evidence gathered as part of the Road Fuel market study, the higher prices drivers are paying at the pumps appear in part to reflect some weakening of competition in the road fuel retail market.

Evidence gathered by the CMA indicates that fuel margins have increased across the retail market, but in particular for supermarkets, over the past four years. As a result of these increasing margins, average 2022 supermarket pump prices appear to be around 5p per litre more expensive than they would have been had their average percentage margins remained at 2019 levels.

Although supermarkets still tend to be the cheapest retail suppliers of fuel, evidence from internal documents indicates that at least one supermarket has significantly increased its internal forward-looking margin targets over this period. Other supermarkets have recognised this change in approach and may have adjusted their pricing behaviour accordingly.

While the level of engagement with the study has varied across supermarkets, the CMA is not satisfied that they have all been sufficiently forthcoming with the evidence they have provided.

The CMA will now conduct formal interviews with the supermarkets’ senior management to get to the heart of the issues.

Sarah said: “Our Road Fuel market study is nearly complete. Although much of the pressure on pump prices is down to global factors including Russia’s invasion of Ukraine, we have found evidence that suggests weakening retail competition is contributing to higher prices for drivers at the pumps. We are also concerned about the sustained higher margins on diesel compared to petrol we have seen this year.”

Groceries

As cost-of-living pressures have grown, the CMA has been working to understand how well markets in essential goods and services are working. Along with road fuel, it identified groceries as an early priority, and started work earlier this year looking into unit pricing practices online and instore.

While global factors have also been the main driver of grocery price increases, and at this stage the CMA has not seen evidence pointing to specific competition concerns in the grocery sector, it is important to be sure that weak competition is not adding to the problems.

Sarah said: “Grocery and food shopping are essential purchases. We recognise that global factors are behind many of the grocery price increases, and we have seen no evidence at this stage of specific competition problems. But, given ongoing concerns about high prices, we are stepping up our work in the grocery sector to help ensure competition is working well and people can exercise choice with confidence.”

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