13 Jan 2015

Fuel price freefall set to last

6:01 pm on 13 January 2015

New Zealanders are likely to continue to enjoy drops in petrol prices at the pump and the reduction is likely to trickle down to other consumer goods, according to an economist.

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Photo: RNZ

Petrol prices dropped again yesterday, for about the 20th consecutive time since October, as a result of a slide in Brent crude oil of about 60 percent since last June. Brent crude has fallen from US$116 in June to US$US48 today.

BNZ senior economist Doug Steel is expecting a fall in the consumer price index in the next two quarters, and a "whiff of deflation" in New Zealand because of the fuel price freefall.

"We're seeing some of that sentiment filter into interest rate markets with quite low interest rates, from even already low levels," he said.

Mr Steel said the drop could be attributed to the US fracking boom, Saudi Arabia's steady supply, the Russian embargo and OPEC's decision not to cut oil production to bolster prices.

"I guess from a New Zealand perspective we are net oil importers, so a lower price is a positive in the sense that it's lowering the cost of the economy."

Mr Steel believed the majority of the drop was due to an excess of supply, rather than a dampening of demand, meaning New Zealand's exports were likely to be unaffected.

And according to Ken Shirley, the chief executive of Road Transport Forum New Zealand, which has commercial freight carriers as members, consumers are likely to feel the benefits.

Mr Shirley said carriers have fuel adjustment factors built into their contracts, and any savings are passed on to customers.

"As long you have a competitive market, then supply of all good and services are looking to compete and they take the opportunity wherever they see a cost reduction to pass that on," he said.

However, taxi drivers weren't pocketing much savings, according to Roger Heele, the executive director of the New Zealand Taxi Federation.

"This comes at the back of six years of consistent increases, and over that time because of those increases, the majority of our members have invested heavily in hybrid cars," he said.

"As a result this sudden and dramatic decrease has not have such a spectacular effect on the pocket."

He said it's a little bit extra, but it doesn't substantially change the bank balance.

As for whether petrol prices at the pump will continue to decrease, Mr Steel said based on recent movement of crude prices suggests it will, but beyond the next week is anyone's guess.

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