9 Mar 2011

Fuel prices may go higher

10:49 pm on 9 March 2011

There are warnings fuel prices could rise further and drive up inflation after the price at the pump reached its highest level for three years.

Prices have surged because of political turmoil in the Middle East and North Africa, as well as a weaker New Zealand dollar.

The price of 91-octane petrol rose 5 cents a litre to $2.16 on Tuesday, with warnings it could increase another 40 cents. Diesel rose 4c to $1.60 a litre.

North Island-based Gull has increased its price for 91 octane to $2.10 a litre, but says it is trying to cut costs is by having more unmanned petrol stations.

Petrol companies say they have not applied the increases in Christchurch.

Westpac economist Dominick Stephens believes prices could go higher still if the unrest in Libya continues and New Zealand's central bank adjusts the Official Cash Rate on Thursday.

Mr Stephens believes this could have a wider impact on the New Zealand economy.

"High petrol prices are a tax on growth, but they also send inflation higher. Inflation could reach 5.5% here when we've got the GST and oil price going up.

"Essentially, it takes money away from consumers' wallets, leaving them less to spend elsewhere, reducing growth. But because of that high inflation, the Reserve Bank can't act in either direction."

Mr Stephens says petrol prices may fall in several months' time if demand in China and the United States reduces or the New Zealand dollar rises.

A spokesperson for the Automobile Association, Mark Stockdale, says prices could climb within days and although they will eventually stabilise, consumers will be paying for increases in freight costs.

The association says petrol has risen 13c a litre since 1 March, while diesel has risen 18c.

BP Oil New Zealand managing director Mike McGuiness says the cost of bringing oil into the country has eaten into profits and it must pass on that cost to motorists.

BP says the situation in North Africa is completely different from two years ago when prices rose due to high demand from China. This time, however, the issue is about security of supply and is a far more serious situation.

Family budgets squeezed

Rising petrol prices are putting the squeeze on family budgets, social service agencies say.

Mangere Budgeting Services chief executive Daryl Evans says the increase follows the rise in GST last year, emissions trading charges and food and power price rises.

Mr Evans says some families will be able to trim petrol costs by having children walk to school, or catch the bus, but that does not work for everyone.

Demand for food parcels has increased by almost 70% as living costs have spiralled, he says.

Auckland City Missioner Diane Robertson says it is very difficult for charities such as the mission, which has 17 vehicles on the road each day visiting clients or picking up food.

OPEC considers production boost

Oil prices fell overseas on Tuesday after Kuwait's oil minister said OPEC was considering boosting production for the first time in more than two years.

North Sea Brent crude dropped by as much as $US2 a barrel, before creeping back to $US114.10 a barrel, some US94 cents lower on the day.

An official increase in OPEC output would signal the group's determination to put a cap on prices after uprisings and unrest across North Africa and the Middle East sent oil to its highest price in more than two-and-a-half years.