[Timbo]

Fuel tax could see inflation rocket


Oil companies due to pass 5c/litre levy onto customers on Friday which could cause inflation and interest rates to rise



30 March 2005

An economist is warning that the new fuel tax could cause inflation to rocket.

The tax comes into force on Friday and oil companies have already signaled they will be passing the five-cents a litre levy onto customers.

Infometrics economist Gareth Morgan says that will take money out of people's pockets, but the biggest impact will be on inflation.

He says the economy is stretched at the moment and the Reserve Bank is battling to keep inflation below three percent.

Mr Morgan suspects the Reserve Bank will raise interest rates again by the end of the year.

[Danpoll]

Fears petrol price may rise to more than $100



• Weakening dollar, higher world prices combine


By Blair Mayston, otago daily times, sat 02 apr



Petrol prices hit a high yesterday, as the Government’s 5.6c a litre rise in petrol tax came into force.
But there are growing fears prices could rise even higher, as the New Zealand dollar weakens against the greenback and world oil prices remain high.
Randomly selected Dunedin stations were selling 91-octane petrol for $1.295 to $1.299 a litre yesterday, and 96 for $1.345 to $1.349.
Consumers Institute chief executive David Russell believed it “quite possible” petrol could reach $1.40 a litre within the next two years.
“There’s no doubt at all the supply of oil is a finite resource and it is going to become more and more expensive to extract it,” Mr Russell said from Wellington yesterday.
“The coming generation will face some quite hard decisions about private cars and the like.”
Mr Russell’s comments came after prominent New York-based energy derivatives trader Goldamn Sachs Group said it believed oil markets had reached the early stages of a “super-spike” period, which could see oil prices surge to $105 a barrel.
Prices have climbed about 25% this year on the back of signals that rapid demand growth from emerging economies like China and India will strain world supply.
Oil analysts told Reuters prices of $100 a barrel in the coming years were possible, but not a certainty.
Mr Russell said, as a rule of thumb, a $1 rise in the price of crude oil added 1c to prices at the pump.
He felt it inevitable people would move towards public transport as fuel prices rose, but believed they would remain attached to their private vehicles until it became more comfortable and convenient.
Mobil spokesman Peter Thornbury declined to speculate on prices, but said there were some increases pending in the next few years.
Petrol tax would rise each year, because the Government had indexed it to inflation.
In 2006, an increase of about 1c a litre was expected to help pay for the construction of petroleum storage and in 2007, a carbon tax was expected as a result of the Kyoto Protocol.
The level of the carbon tax was unknown, but predictions have placed it at 3.5c to 7c a litre, depending on the fuel and the international cost of carbon, he said.
Automobile Association public affairs director George Fairbairn was not keen on “crystal ball-gazing” about petrol prices, and doubted anyone could predict them.
“But keep your tanks filled up, because it’s unlikely that petrol is going to get cheaper in the shortterm,” Mr Fairbairn said.
Based on Automobile Association estimates that the average motorist drives about 14,000km a year, yesterday’s tax rise is expected to see drivers pay an extra $56 to $84 a year for their fuel, depending on vehicle size.
Oil companies contacted yesterday would not speculate on future petrol prices.
Meanwhile, Rural Women New Zealand has expressed concern at the impact yesterday’s tax hike will have on rural communities.
While the 5.6c a litre rise had left urban drivers smarting, it would have a bigger effect outside towns and cities, president Sherrill Dackers said. Prices at the pump in some rural areas were up to 6.5c a litre higher than in urban areas.