Petrol tipped to hit $1.70

Motorists may see petrol prices moving towards $1.70 a litre at peak times in coming months as the dollar weakens and global oil prices rise.

Treasurer Chris Bowen maintains the Australian dollar's decline to US90c will be good for business confidence and manufacturers but analysts warn that households will face a cost squeeze as petrol prices rise sharply over the coming weeks.

Fuel is one of the biggest weekly purchases for most households and the recently broken $1.50 a litre threshold is seen by many economists as a key stress point at which household start to cut back on their discretionary spending.

This is more bad news for a retail sector already struggling against increasingly cautious consumers and the broader economy as it transitions away from the mining boom. Petrol prices are already above $1.50 a litre at the bowser in most cities and this will continue to soar as the double whammy of higher oil prices and lower Australian dollar hit home in the next few weeks, economists said.

The price of oil hit a 14-month high of US$103 a barrel over the weekend on concerns about stability in Egypt while the Australian dollar dropped back to US90.6c - just above its recent 3-year low.

The Australian dollar's collapse from $US1.05 over the past two months has already added 11c to the price of petrol. Last year, the national average price of unleaded petrol was $1.35 or under in all of the major cities, according to data from the Australian Institute of Petroleum.

Economists are tipping the dollar will continue to drop with AMP Capital Investors putting its 12-month forecast at US86c. "There has been a clear lift in pump prices over the past two months - representing disappointing news for consumer-focused businesses," CommSec economist Savanath Sebastian said in a recent note.

"Higher crude prices and a substantially weaker Aussie dollar - pushing up the cost of imported fuel - are likely to see domestic pump prices rise even further in coming weeks. The higher cost of fuel will add to inflation but may also restrain consumer purchases."

Retail sales figures released last week show households may already be facing a pinch and have cut back on purchases of electrical goods and eating out. New South Wales and Victoria registered falls in overall spending during May.

Mr Bowen speaking on Sky News' Australian Agenda yesterday stood by his predecessor Wayne Swan's budget forecast to return the books into the black by 2015 despite fears about a slowdown in China.

He also ruled out reviewing the base or rate of the GST and claims Labor has a "pro-small business" approach. "We want the Labor Party to be, frankly, a party that small business is comfortable with because we see small business as the engine room of the economy," he said.

The price of oil hit a 14-month high of US$103 a barrel over the weekend on concerns about stability in Egypt while the Australian dollar dropped back to US90.6c - just above its recent 3-year low.

The Australian dollar's collapse from $US1.05 over the past two months has already added 11c to the price of petrol. Last year, the national average price of unleaded petrol was $1.35 or under in all of the major cities, according to data from the Australian Institute of Petroleum.