(Bloomberg) -- New Zealand will extend a reduction to fuel taxes to tackle higher inflation and temper the surge in gasoline prices after Russia’s invasion of Ukraine.

The government will continue measures that have cut fuel excise duties by NZ$0.25 ($0.15) a liter until the end of January, and lower charges for public transport and road usage, Finance Minister Grant Robertson said Sunday in a statement.

“We know that the rising price of fuel has a direct effect on inflation,” Robertson said. “Making these changes is a targeted approach to a root cause of the cost of living pressure.” 

New Zealand’s Treasury estimates the impact of the policies will reduce headline inflation by 0.5 percentage points in the June quarter, he said. Inflation is running at 6.9%, the highest rate since 1990, and the central bank’s May forecasts show it slowing to 3% in the second half of 2023 from a peak of 7% this year. 

“Even though many commentators are forecasting that inflation will peak in the June quarter, it is likely to stay for some time at levels higher than we have seen in recent years,” the minister said.

Consumers globally are being hit by soaring costs of gasoline triggered by turmoil in the oil market as demand rises and the US, Europe and other allies restrict purchases of Russian exports. Higher gasoline prices in the US have seen demand plunge below pandemic levels. 

Extending the tax cut is estimated to cost New Zealand about NZ$589 million, which will be re-prioritized from other spending, Robertson said.

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