Don't let the gloomy sharemarket reaction to tumbling oil prices fool you into thinking it is all bad news for the economy. Nothing could be further from the truth.
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Households, even carless ones, should ultimately benefit from lower prices thanks to the dramatic falls in oil prices that have rattled investors so much. What's more, a growing chorus of experts reckon these savings could hang around for a while.
The rapid descent in oil, which has more than halved over the past year to less than $US50 a barrel, has made the normally sleepy month of January action-packed for financial markets.
Shares in some of our biggest companies such as BHP Billiton, Woodside and Santos have suffered sharp falls because of the hit to their profits.
But how the sharemarket reacts is not always a good guide to what an event like this means for the economy.
In the case of oil, what is bad for these corporate giants is good for many others.
That's because petrol is consumed so widely and is needed to produce so many goods and services, that when its price falls sharply, the impact is felt across the economy.
Most directly, it's a windfall for motorists. AMP Capital's Shane Oliver says that for a household using 35 litres of petrol a week, they are now spending $15 to $20 less each week on fuel.
That's bigger than the saving you'd get from a 0.25 percentage point cut in interest rates, for a $300,000 mortgage.
This positive impact on household budgets is probably one reason why consumer confidence has historically tended to perk up when petrol prices fall, according to HSBC analysts.
Even if you don't drive, the falling price of oil can still push down the cost of living, albeit more subtly.
There are lots of goods and services that should ultimately get cheaper as lower oil costs are passed on: things like airfares and other forms of transport that many businesses use.
If these prices fall in the long term, it can meaningfully affect inflation. And if the Reserve Bank judges that these lower prices are feeding into consumer and business expectations about prices, it could ultimately have more scope to cut interest rates.
These benefits are why many economists, and even RBA governor Glenn Stevens, see the oil crash as good news. As AMP's Oliver points out, there are more consumers than producers of oil in Australia, and that means the economy is better off overall.
"The damaging impact is more than offset by the boost to disposable household income and lower business costs," Oliver says.
