Source: Radio New Zealand
Food prices are up 4.5 percent, one of several economic indicators that household budgets are being squeezed. RNZ
New Zealand could experience a real fuel choke point in a fortnight, and Treasury’s worst-case scenario for inflation is too optimistic, says a leading economist.
War in the Middle East has effectively closed the Hormuz Strait, one of the world’s major shipping routes for crude oil.
While the government says New Zealand does not have a supply problem, it has conceded that rising prices will be putting pressure on some households.
Economist Cameron Bagrie says the real crunch point will come in just a few weeks, with fuel destined for New Zealand currently being refined in SIngapore or Korea after going through the strait before it closed.
“What that means in practise is that we’ve got about 30 days supply stored here locally, there’s about another 20 days on the water
“But it’s anybody’s guess as to what ships are going to be in the water two weeks down the track.”
He said a realistic picture should start becoming clear in the next week or two – “The critical variable to watch is going to be despatches of vessels out of Korea.”
While Treasury has said a 3.7 percent rise in inflation was the worst case scenario facing the country, Bagrie said he thought inflation was going to be closer to 3.7 percent as a baseline, with rises in oil costs following through into general price rises.
But he added that there was still so much uncertainty in the global economy.
“Three point seven is an incredibly low number to be putting out there if you are talking worst case scenario.
“There is a big risk that we need to manage, but that risk is unquantifiable at the moment because it’s a moving feast, just have a look at the volatility we’re seeing across markets oil prices get up around $110-$120 and then they’re down to $90, then they’re back up to $105
“There’s so much uncertainty out there and so much flip-flopping in regard to putting pen to paper and coming up with numbers.”
But Bagrie said he had been impressed by the finance minster’s moves this week.
“Nicola Willis has actually done a really good job in the past couple of days, being very measured and pretty honest in regard to her responses. Do we have a problem? The answer is yes. How much of a problem is it going to be? We don’t really know because this thing could settle down quickly, oil prices are up and down like a yo-yo.”
He said there would be a return to normalcy “at some stage”.
“No one knows what stage or how long the duration of this thing is going to last. If anybody can give me an idea of the duration or when Hormuz is going to open, we’ll give you a pretty firm economic assessment in regard to what’s going to be the economic hit.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand