Consumers under the pump if dollar keeps falling

NIKO KLOETEN
Last updated 05:00 25/07/2014

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Petrol prices could hit an all-time high if the New Zealand dollar continues its tumble, motorists have been warned.

But consumers are safe from big price hikes at the pump, and in electronics stores, for now.

The New Zealand dollar fell by about a cent against the US dollar to US86c yesterday despite the official cash rate being lifted to 3.5 per cent, as Reserve Bank Governor Graeme Wheeler labelled the dollar "unjustifiably" high.

The kiwi has fallen by more than US2c in little over a week, a slide triggered initially by last week's shock 8.9 per cent slump in dairy prices.

With the OCR likely to be on hold until December or possibly even next year, there is a chance it could continue to fall.

And AA Petrolwatch spokesman Mark Stockdale said a drop in the dollar would generally translate to higher prices at the pump.

"The rule of thumb is a 1c drop in the exchange rate means an extra cent per litre on the price of fuel and vice versa," he said. "However, AA's monitoring of commodity prices suggests they wouldn't be expected to pass that on at the pump because the cost of imported fuel has fallen slightly so they can afford to absorb the change."

But Stockdale warned that prices would eventually rise as the dollar declined from near-record levels against the US.

Even a moderate decline could push the price of 91 octane petrol from its current $2.22 per litre past its record of $2.27/l last year and towards the inflation-adjusted record of $2.40/l in the early 1980s.

"At US86c the dollar is still high and that's what's keeping fuel prices stable.

"We need to be aware the exchange rate for the last few years has been protecting the market from higher fuel prices."

The high dollar has also been good for retailers and their customers, but Morningstar analyst Nachi Moghe said the recent fall in the dollar would not make a dent in shoppers' wallets yet.

Large retailers had fixed their exchange rate costs well below the current rate, he said. "I think The Warehouse is at US75c.

"It's not going to matter to the market unless there's a dramatic fall in the exchange rate."

Even if the dollar did fall below the levels retailers had fixed, or hedged their exchange rate, it would take some time for the change to flow through to prices on the shop floor.

"Most of them are hedged for six months to a year or even longer, so a short swift fall wouldn't impact them."

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