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Oil prices and the New Zealand economy

Felix Delbruck

This article looks at New Zealand’s oil consumption at a disaggregated level and discusses the consequences of movements in international oil prices for inflation, taking into account New Zealand’s industry structure as well as the tax treatment of different fuel types. Relative to the size of its economy, New Zealand uses a comparatively large amount of oil as transport fuel. The evidence suggests that the indirect (cost-push) effects of higher oil prices on consumer prices could be quite large, substantially driven by higher transport services costs. How large they turn out to be, and whether they matter for medium-term inflation and monetary policy, will depend on factors such as the state of the economic cycle, the degree of competition in particular industries, and the extent to which inflation expectations are anchored.