Fill up now before fuel price shock hits
By ESTHER HARWARD and DEIRDRE MUSSEN - Sunday Star Times | Sunday, 08 June 2008
The record jump in oil prices this weekend looks set to hit Kiwi pockets hard, with rises predicted at the petrol pumps, losses on the sharemarket and delays in interest rate cuts.
National Party leader John Key yesterday called on Reserve Bank governor Alan Bollard to cut the official cash rate to relieve stress on households but Finance Minister Michael Cullen rubbished the suggestion, saying it would cause a quick drop in the New Zealand dollar and push up the costs of imports, including petrol.
The price of US crude oil jumped an unprecedented 8% to $US139 a barrel on Friday night, amid reports it could reach $US150 by July due to rising demand and tension in the Middle East. Israel is threatening to attack Iran if it continues to develop nuclear weapons.
The rise, together with a slump in the US dollar, rise in unemployment and the Dow Jones plummeting nearly 400 points, has intensified fears that the world's biggest economy was sliding into a recession.
Key said the increase of $10 a barrel would flow quickly to the pumps and through to inflation.
"That's going to increase pressure on households that are already stretched to the limit. There's no question that the sooner [Bollard] lowers interest rates, the sooner he can take pressure off households.
"The really worrying point here is that the trend for oil prices is continuing to rise. In the short term this means [higher] petrol prices, higher levels of domestic inflation and the likelihood interest rates will stay higher for longer."
Key expected the fall in the US stock market to have a "chilling" effect on New Zealand's stock market tomorrow.
But Cullen said a lower cash rate would push up costs for most households, with only those with significant mortgages benefiting from lower interest rates. "The sort of panic reaction that Mr Key is calling for isn't clear strategic thinking.
"If oil prices rise suddenly, the New Zealand government has no magic wand to wave. If there was, you can guarantee we'd wave it a lot."
Petrol companies are delaying a decision on whether to hike fuel prices.
BP spokesman Neil Green said the company would wait until tomorrow and any change would depend on US crude oil, refined oil prices and the strength of the NZ dollar. A $US1 increase in oil prices usually meant another one or two cents at the pump.
"Given the size of the jump and if the New Zealand dollar doesn't come back, we're talking some significant squeeze on our margins."
Shell spokeswoman Jackie Maitland said Friday's record jump put the company in "uncharted territory".
If oil prices continued to rise, said ANZ National Bank chief economist Cameron Bagrie, the Reserve Bank would be unlikely to cut the cash rate.
"They have inflation peaking at 4.7%. Given where oil prices have gone, we could be looking at 5%," Bagrie said.
Bagrie said middle to lower income New Zealanders suffered the most in an inflationary environment because they spent a bigger proportion of their income on necessities.
Petrol prices have risen 25% in a year to $2 a litre for 91 octane, and diesel prices have shot up 69% to $1.73 a litre.
Consumers are paying more for taxis, couriers and basic items, including food.
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