Good news for family budgets
Petrol price fall and tax cuts bring hope of lift in retail spending
By BEN FAWKES and JAMES WEIR - The Dominion Post | Saturday, 18 October 2008

The foot is coming off the throat of family budgets, with a big drop in petrol prices adding to the extra cash from tax cuts.

All the big oil companies slashed petrol prices by 8 cents a litre yesterday, to $1.82, down almost 40c from the peak in July.

The cut was bigger and faster than usual, but not as big as the 10c to 15c some economists said it should fall, given the huge drop in crude oil prices since July. Diesel was down 6c.

Shopkeepers hope the extra $17-a-week tax cut for average workers starting this month and the spare cash from lower petrol prices will help sales in the leadup to Christmas. The highest paid get an extra $28 a week.

The Reserve Bank is expected to cut official interest rates by one percentage point late next week, with two-year mortgage rates likely to drop sharply in coming months, from 8.7 per cent to about 7.5 per cent next year.

However, the good news is being offset by growing worries that the credit crisis will mean a global economic slowdown which will hit New Zealand exports and lead to more job losses.

Prime Minister Helen Clark and National Party leader John Key welcomed the cuts, saying fuel costs needed to keep being reduced.

Miss Clark said: "You would expect the price to come down, unless there's been significant adverse exchange rate movements. That Shell has chosen to drop 8c a litre today is obviously good news."

Mr Key said: "I think ultimately getting those prices down helps economic growth."

Automobile Association spokesman Mark Stockdale said the speed of the price cuts was unusual and possibly reflected the public pressure the companies were feeling as motorists tired of increasingly large fuel bills.

Oil companies attributed the fall to crude oil price drops and the Kiwi dollar stabilising.

Overall retail sales rose slightly in August, before the tax cut came in, but growth has been flat since last December and shopkeepers are struggling to see any improvement.

Westpac senior economist Doug Steel said the fuel price drop would come as welcome relief for consumers after a turbulent year marked by across-the-board price rises.

"It's significant right at this time when consumers are being smacked around the ears by various shocks ... housing, interest rates, food prices.

"It is obviously good for New Zealand consumers ... the foot is off the throat. If the amounts being spent on fuel are dropping, they might be buying other things."

However, BP managing director Peter Griffiths said the conditions affecting petrol prices remained volatile.

Pump prices were dictated by the international price of refined fuel - in US dollars - exchange rates, taxes and levies, international shipping costs and local operational costs, he said.

From here.