Source: Radio New Zealand
New Zealanders are likely to continue to spend more but get less fuel for the near term at least. Quin Tauetau
New Zealanders are likely to continue to spend more but get less fuel for the near term at least – and the pressure on prices could mean the official cash rate has to rise as soon as May, one economist says.
Brad Olsen, chief executive at Infometrics, said data released on Friday by Stats NZ showed total fuel spending in March was just over $580 million, about 10 percent higher than a year earlier.
“We estimate that prices were about 14 percent higher in March compared to a year ago, and that’s sort of a weighted average across all fuel types, which means that actual volumes of fuel purchased probably declined about 4 percent compared to March last year, which again is in keeping with that expectation that probably for the first two weeks households were going and trying to fill up before things got even more expensive, and then they were trying to park their car up a bit more and not use the very expensive fuel that they just got because no one wants to refill with even more expensive fuel out the other side.”
He said fuel spending was up 19 percent month-on-month.
It was a pattern that was likely to continue.
“Spending activity on fuel will remain high but over time the actual volumes being delivered are likely to remain a bit more subdued.”
Brad Olsen, chief executive at Infometrics. RNZ / Samuel Rillstone
He said that would be more the case with petrol than diesel.
“In terms of volumes, just simply it’s still required in so many parts of the economy that you just can’t move away from.”
Higher fuel spending by households would limit other activity.
“We’ve also looked at card spending on core industries, so excluding fuel and vehicles. That figure declined 0.1 percent in the month of March compared to February on a seasonally adjusted basis.
“Not an immediate sign of demand destruction. I think because everyone, again, was just getting their heads around what was going on throughout the month.
“But we would expect going forward that households, because of how big of a drop confidence had in March and clearly is still going to have in April, plus potential interest rate hikes coming through, that does make for a pretty challenging position where a lot of households are going to go, ‘I’m probably not going to spend all that much. I’m going to try and limit my overall consumption because I’m just so worried about what’s coming next’.”
He said inflation was starting to look “pretty ugly”.
“Our estimates are probably higher than the Reserve Bank and some of the other forecasters out there have it for the data that comes out on Tuesday next week. The worry for the Reserve Bank there is that, yes, clearly there’s higher fuel prices and similar that have come through. But even pricing pressures in parts of January and February are probably more intense than the Reserve Bank would be comfortable with.
“If you’ve already got a position before the fuel crisis where pricing pressures were higher than anticipated, despite a still fledgling economic recovery, that sort of says to the Reserve Bank that businesses were already primed around prices going up. There was already more underlying inflationary pressure. You then add on the pressures that you’ve got now and everyone’s saying, well, I might have to raise my prices to try and cover the increases that I’m having to pay for.
“That does set you into that pretty worrying position where, for the Reserve Bank, they might well be facing higher starting inflation and clearly higher ongoing inflation. It could be a pretty potent mix for inflation expectations, which is why we’ve opened the door… to amore lively conversation for a May hike, potentially, than I think a lot of people are sort of counting on.”
ANZ senior economist Miles Workman said the cost in New Zealand dollars of refined fuels in Singapore had dropped a little recently.
“Part of that is owing to the rise in the NZD. However, that’s not a guarantee that prices at the pump will fall one for one, given high shipping costs and very tight global markets.”
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