Diesel up nearly 20% in four weeks as pump prices near April peak

Diesel has risen nearly 20% in 28 days to $3.18 a litre. The figures come from fuel-price app Gaspy, as reported by Radio New Zealand and Xinhua on Monday. Over the past month, 91-octane petrol has climbed more than 15% to $3.44 a litre, close to the $3.50 it hit in April.

"This will cause headaches for motorists and the Reserve Bank," Kiwibank said in a market update quoted by Xinhua. "Refined fuel prices out of Singapore remain high, which doesn't bode well for the outlook in New Zealand over the coming months."

Kiwibank also said a weaker New Zealand dollar could add to the effect of higher fuel prices. ANZ's economists see the same pressure. "The spot Dubai [crude oil] price is now more than 40% above the RBNZ's assumption for the fourth quarter of US$83.7/bbl," ANZ said, as reported by interest.co.nz. "In addition, the refining spread has blown out, meaning global fuel prices (particularly diesel) could be considerably higher than the crude oil price would normally imply."

Diesel carries no fuel excise duty, so a rise in cost pushes its pump price up by more in percentage terms, price tracker KiwiCost says. In KiwiCost's figures, diesel peaked at $3.49 a litre on 7 April, during this year's Middle East supply shock, when it briefly cost more than petrol.

The official cash rate (OCR) is 2.75% after rises of 25 basis points (0.25 percentage points) in July and September. ANZ's economists, led by chief economist Sharon Zollner, now expect three more rises rather than one, according to interest.co.nz. They forecast 25 points on 28 October, a pause on 9 December, then rises in February and March, taking the OCR to 3.50%.

ANZ gave three reasons for the change: the jump in crude oil prices, a weaker New Zealand dollar as global investors grew more cautious, and an economy with more momentum than expected. June-quarter GDP rose 0.2%, and annual growth of 2.6% was ahead of the Reserve Bank's 2.2% forecast. The trade-weighted dollar is 3.3% below the Reserve Bank's fourth-quarter assumption, which ANZ said will raise the price of all imports, not only fuel.

"The recent surge in fuel prices raises the odds of second- and third-round spillovers across the CPI basket," ANZ said.

Kiwibank's economists disagree on timing. They said it was "premature" to bring the next rise forward to October on the strength of the June-quarter figures. "When the economy is still in embers, now is not the time to be dousing it with water," they said, according to interest.co.nz.

Borrowers are already paying more. On 18 September Westpac cut its advertised two-year special by 16 basis points to 5.29%, but raised most other fixed home loan rates by 0.10 to 0.26 percentage points, 1News reported. The bank blamed wholesale funding costs pushed up by geopolitical tensions. "With the OCR forecast to rise over the next year, now is a good time to think about your home loan strategy," said Westpac NZ's Sarah Hearn.

BNZ did the same on 22 September. It cut its two-year rate by 10 basis points to 5.35% and raised its one-year rate to 5.19% and its five-year rate to 5.75%, according to 1News. All the major banks raised floating rates after the Reserve Bank's September increase.

The next test is tomorrow. ANZ's Business Outlook survey is due at 1pm on 30 September, and it should show whether higher fuel costs are feeding into what firms plan to charge. In August, business confidence fell 2 points to 53.7. Firms' one-year inflation expectations rose from 3.14% to 3.26%, and the net share of firms planning pay rises has moved the opposite way to oil prices in recent months, ANZ found. A net 51.0% said they planned to raise prices.