Fuel’s new normal in high prices: economists
If you think $2.40 for a litre of 91 petrol is a tough price to pay, how about $3.20?
Motorists are smarting about increases in petrol prices, which have risen by about 40 cents a litre in recent weeks. About a quarter of that is due to increases in taxes.
The rest is a combination of the rising price of oil and weakness in the New Zealand dollar.
Economists say higher petrol prices are the new normal – and they could still rise further.
Economist Shamubeel Eaqub said oil prices could still rise from US$80 a barrel to US$100 – a level last seen before the global financial crisis.
‘‘What we would need is relatively good global growth, which we have, and uncertainty in geopolitics. Given what’s happening in Saudi Arabia and Iran, we’ve got a lot of the factors that could cause oil prices to rise.’’
He said how sharply that rise would be felt by motorists would depend on the performance of the New Zealand dollar.
If it dropped to US60c from US65c today, that would put petrol at about $2.70 for a litre of 91.
If the currency dropped to US50c, as it did in 2009, the petrol price would rise to $3.20.
Economist Cameron Bagrie said he expected the dollar to remain weak.
‘‘We also know here’s going to be a structural shift in the tax component to petrol prices. If we want to get people out of cars and build more transport systems, we’re going to be hit at the pump.
‘‘Petrol prices are going to be elevated for the next three or four years or longer.’’
Bagrie would not rule out an increase in price to $3, although it was not the most likely outcome in the near future.
ASB chief economist Nick Tuffley said the dollar’s weakness had bottomed out and oil prices seemed to be at or near a peak.
‘‘But all we need is a sharp drop in the New Zealand dollar or a squeeze higher in oil prices and it will translate quickly into higher petrol prices.’’
Tuffley said petrol at $3 a litre would cost the average household an extra $18 a week.
Eaqub said the top 50 per cent of households by income would survive petrol prices at that level, but people on lower incomes tended to live further from work and were also more likely to have older, less fuel-efficient cars.