11 Dec 2008

Retailers, local govt reject Bollard's call for price cuts

4:11 pm on 11 December 2008

Industry and local government representatives have rejected Reserve Bank governor Alan Bollard's call for major industries to pass on lower costs to consumers.

Dr Bollard urged sectors ranging from banks to food retailers to pass on the benefits of a weaker economy.

In a speech to the Wellington Chamber of Commerce on Wednesday, Dr Bollard said inflation remained high despite falling commodity prices and official interest rates.

Dr Bollard called for these to be passed on to consumers in the form of lower food, electricity and fuel prices, as well as interest rates charged to businesses and homeowners to help the economy recover more quickly.

Gull Petroleum general manager David Bodger said prices at the pump are fair value.

"New Zealand has the third or fourth lowest prices for petrol in the OECD countries, and that's with or without taxes on it, so I think that's a sign that this is a very competitive market."

Mr Bodger said a falling dollar has lessened the scope for reductions in the cost of fuel.

Grocery council vice-chairperson Sylvia Burberry said food price rises have lagged behind commodity price increases over the last few years, and it was not realistic to expect wholesale price decreases just because commodity prices are decreasing at the moment.

Dr Bollard also pointed the finger at local authorities, saying councils should realise they need to set rates increases below inflation for a change.

Local Government New Zealand president Lawrence Yule said if councils reduced rates to below the rate of inflation a lot of work would get stopped and jobs may be lost.

Mr Yule said local authority rates account for only 2.5% of measured inflation.

Finance Minister Bill English told Morning Report every lever needs to be pulled through the recession without people losing their jobs and houses.

He said Dr Bollard has been concerned for some time that domestic inflation remains persistently high.

"I suppose it means that he'd prefer to be able to drop interest rates further if he could. He's the Reserve Bank governor, he's signalling to people what he wants them to do. Its all part of getting this economy through a recession."

In the speech, Dr Bollard said the Reserve Bank has cut the Official Cash Rate by 3.25 percentage points since the middle of the year, but trading banks have not passed on all of this.

He said banks should not attempt to maintain high profit margins in the current climate.

Kiwibank chief executive Sam Knowles told Morning Report banks have scope to pass on interest rate reductions. He said business banking is a particular area where the cost of borrowing could be reduced.