Plummeting NZ dollar means likely fuel bill rise

The plummeting dollar may have exporters celebrating but it will likely swell New Zealand's fuel bill by a quarter this year at the expense of consumer spending, Goldman Sachs JBWere says.

The kiwi hit a fresh 18-month low just under US64c late last week but recovered a little yesterday to close at US64.27c. Its slide from the US70c mark in the last three months, with elevated crude oil prices thanks to strong global demand and geopolitical uncertainty, have seen New Zealand petrol prices climb back near to the highs seen after Hurricane Katrina last year.

Goldman Sachs JB Were economist Shamubeel Eaqub said the kiwi's depreciation and high crude prices were likely to persist this year.

Eaqub believed the kiwi was heading for US59c within 12 months and, as a consequence, the retail petrol price was likely to range between $1.50 to $1.65 a litre this year. Unleaded 91 petrol is retailing for about $1.49 a litre and premium for $1.54.

Goldman Sachs JBWere estimated the household fuel bill last year was $3.1 billion. It expects that figure to be $765 million higher this year.

Economists say demand for fuel is relatively "price inelastic", meaning the price can rise substantially before motorists start to buy less. That, in turn, means consumers have less to spend on other things.

Eaqub also noted there would likely be an increase in New Zealanders' household debt servicing bill this year of $1.7 billion on new loans and increased payments as some homeowners were forced to refinance their home loans at higher rates. These factors would be partly offset by growth in income and the new Working for Families package as well as the ongoing influence of housing wealth gains. Overall, Eaqub said Goldman Sachs JBWere expected household consumption growth "to slow significantly" from 5.1 per cent last year to 2.3 per cent this year.

"The plausible range of fuel prices suggests that there are downside risks to the household consumption growth outlook," he said.

With risks to the currency skewed to the downside, and ongoing upside risks to international crude prices, "the risk is for retail petrol prices to range higher from present levels".

UPS AND DOWNS

* The kiwi's recent depreciation combined with high crude oil prices have pushed petrol prices close to post-Hurricane Katrina highs.

* The 2006 fuel bill looks likely to rise by a quarter as a result.

* A bigger fuel bill means consumers will spend less on other goods and services.