More price rises on the horizon

Increases in the cost of petrol, phones and power are likely to be the first of many price rises to hit consumers this year.

Telecom has led the pack by revealing last week that it will hike home phone rental charges for many customers by 6 per cent in March.

Meanwhile, motorists have endured the second jump in fuel prices in a fortnight, and Mercury Energy has announced its prices will rise by 5 per cent.

However, much steeper price hikes could be on the cards if the over-valued Kiwi dollar drops and the widely predicted slowdown in the housing market eventuates.

One expert is even predicting the downturn could lead to a darkening in the national psyche.

"If the housing market gives up the ghost, then all the cards are stacked in one direction and they'll all fall one way. That might not look very pretty," said Westpac economist Andrew Fung.

Rising wages are putting pressure on businesses to lift their prices, and a weaker Kiwi dollar could see a big increase in the cost of imported goods - such as petrol and big-ticket consumer electronics.

BNZ economist Tony Alexander said the dollar was expected to take a tumble in the second half of 2006 or in 2007.

"History shows eventually it's going to fall strongly," he said.

A weaker dollar would lead to negative migration flows and economic pessimism, Mr Alexander predicted. However, he stopped short of forecasting a full-blown recession: "It's just that the economy's going to go through a pause."

While exporters, such as farmers and forestry companies, will benefit from a lower dollar, declining prices for their goods could cancel out any of the benefits.

Motor vehicle dealers are also preparing for tougher times, after new car sales hit a 20-year peak last year. 78,000 passenger cars were sold, up almost 8000 in two years, according to Motor Industry Association statistics - but the market is expected to plateau this year.

However, the greatest bugbear of motorists - high oil prices - will remain a permanent fixture, with the cost of a litre of petrol having gone up seven cents already this year.

Although the cost of home-to-mobile calls could drop as the Government ponders whether to regulate mobile termination rates, the Telecommunications Users Association is not confident there will be a significant reward for consumers.

"There'll be a lot of short-term specials and apparent flurries of activity that will, on the surface, appear to bring prices down, but at the end of the year there will not have been a lot of progress," said spokesman Ernie Newman.

Already historically high, power prices are likely to continue their trend upwards, depending on rainfall and lake levels.

Electricity prices for households increased almost 8 per cent in the year to September 2005 - more than double the rate of inflation.

Power sector analyst Brian Leyland said increasing spot prices for power would be passed quickly on to consumers. "Before very long all the retailers will start jacking their prices up for residential customers ... for industrial customers it promises to be much worse."

- HERALD ON SUNDAY