Falling fuel prices could ease inflation pressure

Petrol prices fell another 6c yesterday to their lowest for more than five months, raising hope that inflation may drop from its peak of 4 per cent.

All petrol grades are 21c a litre cheaper than they were three weeks ago, after four rounds of price cuts by the oil companies.

But although 156c a litre for 91-octane petrol and 161c for 95-octane are the lowest prices since March, the Automobile Association notes they are also the same as those reached a year ago, when Hurricane Katrina battered United States oil production.

"We have just got to the same position as September 7 last year when we hit the highest price ever," said AA spokesman Mike Noon.

"So while these falls over the last few weeks are absolutely marvellous, prices are still very high."

He was pleased by what he considered sharp price competition, in which Shell led with a 5c cut yesterday morning, but soon had to match a 6c drop by BP.

Diesel's price was also cut, but only by 3c a litre, to 119c.

That leaves it 17c higher than a year ago, partly the result of strong international demand for what is the main fuel of industry, and partly because of higher costs caused by a reduced sulphur requirement introduced on January 1.

Road Transport Forum chief executive Tony Friedlander said the latest cut, which made diesel 9c a litre cheaper than it was three weeks ago, was welcome relief for his members.

Oil company representatives attributed the latest price cuts to the easing of tensions in Lebanon and Iran, and to the end of the United States summer holidays.

But none of the oil companies will predict their next move.

Even as they were cutting prices, London crude oil went back above US$68 ($105) a barrel from a 10-week low on Monday, and the New Zealand dollar fell by more than 1c against the greenback.

UBS bank economist Robin Clements said that although lower fuel prices would not be enough to make the Reserve Bank cut interest rates, they would hopefully lead to an easing of inflation.

"If petrol prices stay where they are, we can probably say inflation has peaked, whereas if they had kept going up we might have seen it peaking beyond 4 per cent."

In July, Statistics NZ said a one-third increase in petrol prices over the preceding year contributed 1.1 percentage points to the inflation rate.

But Mr Clements said anything could happen, and the lull in demand for petrol in the United States could soon be overtaken by the onset of the hurricane season.

The Auckland Regional Transport Authority yesterday attributed continuing strong growth in public transport patronage to high petrol prices and improved services.

It reported a record of 566,000 trips last month on the region's rail network, 21,000 more than the previous high, achieved in March.