Opinion
With indecent haste, and in unison, our four main oil suppliers have lifted the prices of petrol and diesel by 6c a litre, the largest single step in a long while. The reasons given are a continuing shortage of refining capacity worldwide and a weaker New Zealand dollar. The latter
was obviously the trigger. The dollar has fallen slightly since the news that Treasury and Reserve Bank officials have been telling Japanese investors this economy is not a good bet. But the easing of the exchange rate so far hardly seems sufficient of itself to warrant such a fuel price rise. It looks very much like the "big four" have taken the news as an excuse to take a step they have wanted to take for a month or more.
They are, as usual, much quicker to raise prices than they are to reduce them when the dollar gains strength. Indeed, it may be wondered whether consumers ever got fuel as cheaply as they ought to have done during the dollar's high ride. The road haulage industry has expressed concern at the margins oil companies are making on diesel, though petrol margins have been below average in recent weeks by the Automobile Association's reckoning.
The fact that the major companies have moved together arouses suspicion of collusion, though that is never conclusive evidence of price-fixing. Competitive markets also produce standard prices because all suppliers of the same product have to match the rates of the most efficient. And if all come under the pressure of increased costs, the first to raise its price will quickly be followed by the rest. In recent years, though, petrol price rises have usually been led by one or two of the majors and the others have not always followed, which has forced the leader to drop its price back to where it was. The fact that all four have moved together this time suggests to the Consumers Institute that the price is unlikely to relent.
The oil companies have given us, if nothing else, a reminder that the dollar's much-desired drop would not be a double-edged sword. While it would bring some relief to export industries and stop the recent job losses in that sector, it would raise the price of all imported products, causing either inflation, if consumers continued to spend, or unemployment if consumption drops. With a labour shortage in the economy, we can hope that whatever happens to the dollar, those who lose a job in one sector will be able to find work in another.
But with politics getting back into gear this week, it is timely to note that a lower exchange rate is not a universal panacea. It might not even help exporters as much as it should if, like Fonterra, they are hedged to current rates. The fact that the dairy exporting co-operative has bought US currency at an exchange rate of 67USc for the rest of the season suggests it does not expect the dollar to fall significantly. If only the oil companies took the same view. Fonterra probably reflects the financial market's dismissal of the Government's recent extraordinary efforts to talk foreigners out of New Zealand-dollar investments. Talk is cheap. It is action that impresses investors and so far the action the Reserve Bank has taken to lift interest rates has not been sufficient to convince foreign investors that this economy is going to be stalled.
They probably estimate that the Government lacks the stomach for the contraction that would keep inflation within its target. The likelihood, as they probably see it, is that interest rates are going to remain high enough to give them a handsome return but not high enough to stall the economy and cause the dollar to lose value. If that outlook prevails then it spells no relief for exporters and no escape from the economy's current predicament. It may take a truly punishing interest rate rise to bring the catharsis.
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