Business hits back at Bollard's 'cut prices' call

By David Eames

Business leaders have bit back at Reserve Bank Governor Alan Bollard after he took a swipe at oil companies, power companies, local authorities and banks, among others, for not pulling their weight in these hard economic times.

In a speech entitled "Everyone needs to play their part" yesterday, Dr Bollard called for price drops for almost all life's essentials.

Food, electricity and petrol could all come down in price, he said.

But leaders in the major industries returned fire last night, rejecting the criticism.

Petrol companies were quick to defend their position.

Shell spokeswoman Jackie Maitland rejected the accusations, citing close to 20 petrol decreases since July. The pump price had dropped 83 cents in that time, she said.

Both Ms Maitland and Gull general manager Dave Bodger said the Government's inquiry into petrol prices this year had found the local market to be competitive, and that international prices were the main factor in setting the price here.

"I am not aware of Dr Bollard's full understanding of the oil industry," Mr Bodger told the Herald.

Claire Shaw, spokeswoman for Meridian Energy - New Zealand's largest state-owned electricity generator - said the company had an obligation to its shareholders, the Government, and the public to ensure security of supply.

"To do that, we need to perform as a business," she said.

Food and Grocery Council executive director Brenda Cutress said Dr Bollard did not need to tell the industry to pass on lower commodity prices.

The food industry had seen an "incredible" rise in commodity prices in the past year, and the New Zealand supermarket industry was "highly, highly competitive".

As about 35 per cent of consumers shopped on price alone, there wasn't a lot of opportunity for suppliers to artificially inflate prices.

"No retailer wants to hike up the price of food because they think they will make a buck."

Though the Food and Grocery Council deals with producers of processed foods, the whole food industry was at the mercy of external forces including overseas prices, transport costs and even the weather.

In his speech, Dr Bollard told the Wellington Chamber of Commerce that inflation was also still an issue.

He has cut the Reserve Bank's official cash rate sharply, from 8.25 to 5 per cent, in just over four months in anticipation of a global recession coming on top of a local one.

"Short-term mortgage rates have been cut, but not by this much," Dr Bollard said. "Banks should not expect to be able to maintain high profit margins in this environment."

Inflation at 5.1 per cent is well outside the 1 to 3 per cent band in which he said is required to keep it on average over the medium term.

The Reserve Bank forecasts inflation to drop to 1.5 per cent by September next year, reflecting lower commodity prices and an economic climate so weak that firms are wary of passing on higher costs for fear of losing business.

But Dr Bollard stressed yesterday that he needs to see evidence that inflationary pressures are reducing significantly across the board if he is to keep on cutting interest rates.

"We would hope that the electricity industry does not take advantage of its market position and keep increasing rates, that local authorities realise they need to set rates increases below inflation for a change, that the construction materials industry responds to much weaker demand, that the food industry reacts to lower international commodity prices with price cuts, that petrol companies keep cutting forecourt prices, that the transport industry passes on fuel price cuts, and that the banks pass on interest rate cuts."

Over the past three years inflation has averaged 3.2 per cent but household energy costs and local body rates have risen nearly twice as fast, while petrol prices rose by an average of 14.3 per cent a year.

Since July, however, world oil prices have fallen by more than two-thirds. An equal reduction at the pump could not be expected, as it is offset by a lower exchange rate and diluted by other costs like taxes and firms' profit margins.

But even allowing for that, retail petrol prices should be dropping further, Dr Bollard said.

Likewise, now that global dairy prices had "crashed" there was plenty of room for retail price cuts.

What he says

* Petrol companies should keep cutting forecourt prices.
* Food industry should respond to lower commodity prices.
* Local authorities need to set rates increases below inflation.
* Power companies should not take advantage of market position.

What they say

* Shell spokeswoman Jackie Maitland: 20 petrol price drops since July.
* Food and Grocery Council executive director Brenda Cutress: New Zealand supermarket industry "highly, highly competitive".
* Meridian Energy spokeswoman Claire Shaw: "We need to perform as a business."
* Auckland City Councillor Doug Armstrong: City had managed to keep its rate rises within the council rate of inflation.

- NZ Herald

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