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Inflation can fuel new behaviour

Opinion Piece

The price of fuel in Turanga (Gisborne) has jumped nearly 30 cents a litre in recent months. This has a big impact on our budgets.

One of the first adjustments we can make is to buy fuel from the cheapest local petrol station. Fortunately we have choices. Over the past week Gisborne has been in the great position of having the lowest petrol price in the country, 2.13! This compares with 2.30 in Hawke’s Bay and 2.45 in Auckland and Wellington. Gull and Waitomo are driving competition.

In Gisborne there has also been a 20c difference in the petrol price between petrol stations — a good reason to shop around and get the best deal.

Higher petrol prices do hurt. However, the pain is being cushioned by our economy growing and more jobs being created. Also helping is the boosted family support and winter energy payments.

Freight companies in most cases will pass on the increased fuel cost. This could push up prices at the supermarket. Many households may have to cut costs to manage. That could mean driving less, sharing a ride or shifting to a cheaper car to run.

Right now it may mean cutting costs like how much we spend at the supermarket, on holidays or on coffee. The international oil price has bounced up 50 percent. More maybe to come.

We are entering a long period of higher fuel prices. Gisborne is geographically isolated. We have good reason to reduce our fuel use.

For forestry, some more isolated blocks may be less viable to log. This is the reality of markets and is the forest owners’ risk. The recent 10 percent drop in the kiwi dollar will help log exporters, farmers and growers.

In Gisborne forestry is being supported by large roading investments for forestry routes paid for by the taxpayer, ratepayer and industry. It also receives large tree-planting subsidies designed for soil and water quality protection. It has to lift its environmental game for this support to continue. It’s our councillors’ responsibility to ensure this happens.

Our Prime Minister Jacinda Ardern’s initial response to fuel price rises has been to give urgency to new tools for the Commerce Commission to drive competition. This looks a good move. The margins of the major fuel companies have gone up 100 percent over the past 10 years and some of the regional price differences are wonky.

Importantly, the supermarket industry will also come under early, close and well justified scrutiny. This will help moderate inflation pressures.

For Gisborne there is a risk the petrol industry review may lead to some of our recent price advantage ebbing away, if the fuel companies move focus to other regions.

Inflation can hurt a government. Voters don’t like prices going up. The Government has options to limit the pain. For example, in a couple of years it could take GST off fresh fruit and veges, rates and the fuel excise to help drop prices. This would be radical, but may not work well. Businesses and councils often just bank “windfall gains” and don’t pass it on to the consumer or ratepayer. The jury is out on whether reducing GST on these items is a good response.

My pick is the Government’s large budget surpluses, if they continue, will be used for better infrastructure, better public services and wages, business support and tax cuts in 2021. In the short term I’m still picking there is a strong case for businesses in the regions to be supported by a slower rise in the minimum wage to $18 rather than $20 by 2021.

John Kape