Petrol prices, interest rates set to soar over oil fears

CONSUMERS were hit with a double whammy yesterday as petrol prices rose sharply and the European Central Bank (ECB) warned that an interest rate hike was on the way.

With one expert predicting petrol prices of €5 a litre by 2010, several stations around the country were charging over €1.30 yesterday. Unleaded prices around the country are moving close to €1.20 a litre, with one Statoil station, in Mountmellick, Co Laois, already charging €1.39.

The ECB warned there was likely to be another 0.25% increase in base lending rates in June, pushing the key rate up to 2.75%. Since December, borrowers have been hit by two jumps of 0.25% as the ECB moved to curb inflation in eurozone economies.

The pressure is coming from record oil prices, which rose to $72.49 yesterday. The price of oil per barrel has shot up by 38% in the past year as rising demand and tensions over a possible US attack on Iran destabilise the market.

European Central Bank chief economist Otmar Issing warned yesterday that oil prices were also likely to push up the ECB’s inflation forecasts in June. With oil prices likely to keep rising in the short term, the ECB said it will act to prevent inflation getting out of hand.

If rates go to 4% over the next 12 months, as some economists fear, then the impact of the 1.5% interest rate hike from the current 2.5% level will add €230 a month to repayments on a €250,000 mortgage spread over 35 years, said AIB chief economist John Beggs.

University of Limerick Professor Austin Darragh told a conference yesterday that motorists could face paying €5 a litre by 2010.

The news comes as a soon-to-be-published IBEC survey of Irish businesses showed most were worried about rising energy and transport costs even before the recent crisis.

According to the three-month study involving 225 companies and more than 90,000 employees, the cost of energy was the biggest concern for 46% of respondents.

IBEC’s Brendan Butler said the issue of energy and transport costs was not new.

In 2005, energy costs rose by 17% and in the past two years transport costs have increased by just under 20%.

Mr Butler said while the rising price of oil was worrying for a number of reasons, the main issue for the economy was the knock-on impact on energy costs.

“We are more dependent on oil than almost any other country and price increases here will be higher than any other country,” he said.