Oct 24, 2012

CPI higher than expected — but don’t blame the carbon tax

Inflation has come in higher than expected at 1.4% for the quarter -- but electricity companies, not the government's carbon tax, are the culprits.

Glenn Dyer — <em>Crikey</em> business and media commentator

Glenn Dyer

Crikey business and media commentator

Blame higher electricity charges, not the carbon tax. That's the message from today's consumer price index data and a speech by a key regulator. Today the head of the Australian Competition and Consumer Commission, Rod Sims, is claiming in a speech that the electricity pricing rort is costing Australian consumers $3 billion in much higher than needed charges, a cost which we also saw today has leaked into the cost of living with the CPI  jumping a higher than expected 1.4% in the three months to September, against a forecast rise of 1%. The 1.4% rise followed a 0.5% rise in the June quarter and made the annual rate to September 2.0%, up from the 1.2% rise in the 2011-12 financial year. The CPI rise was principally drive by a massive 15.3% jump in electricity charges, according to the Australian Bureau of Statistics, with a nasty 14.2% jump in the cost of gas and other household fuels adding to the impact. That means energy groups such as Origin and AGL (which moaned about criticisms of higher electricity charges at its AGM yesterday) which sell gas and electricity to millions of Australian consumers and businesses, have gotten the lion's share of the higher prices. Sims fingered the power companies, poor regulation and the federal government for the rort. He blamed much of the rise in electricity prices on unnecessary spending on "poles and wires" which has made up as much as half of the spending over the past five years (That's the so-called "gold plating"). Sims also said the poor way the government has controlled that spending has resulted in the industry regulator, the Australian Energy Regulator, having "little ability ... to deal with excessive forecasts", according to a report of his speech on The Sydney Morning Herald website. It has been shown by media investigations (especially in the Sydney Morning Herald by Michael West) that instead of electricity demand rising, it has been falling for most of the last five years. Sims said today that the poor government controls has allowed the power companies to be able to "cherry pick" decisions, adding as much as $3 billion to electricity bills when increases should have been much smaller. With power demand falling, generators are being forced to cut output by closing power generating units or whole stations. Others are cutting expansion plans. And, judging by the impact on the cost of living, we will go on paying for that in higher charges and other costs linked to the CPI. The ABS indicated today that the higher power charges impacted the country as a whole in the quarter. "The housing group was the most significant positive contributor to the All groups quarterly movement, recording rises in all capital cities. The largest movement was recorded in Adelaide (+4.6%). The most significant contributor to the rise in the housing group in all capital cities was electricity." The ABS said Sydney (where some of the biggest power rises have happened) saw a 1.7% jump in the CPI in the quarter. The lowest increase for any capital was 0.7% in Hobart. Thanks to moderate to low inflation in the preceding three quarters, totalling 0.6%, the annual rate for the CPI in the year to September was 2.0%, right on the lower level of the Reserve Bank's 2 to 3% inflation target "over time". The CPI result won't have any impact on RBA thinking on interest rates, they will either be cut on November 6 or at the last RBA board meeting for the year in December, according to market economists and interest futures markets. Besides the power and gas boosts, the ABS said a 6.6% rise in the cost of international travel, a 4.5% rise in the cost of hospital and medical services and a sharp 10.5% rise in vegetable prices helped boost the CPI (the big rise in vegetable prices followed a sharp increase in the prices of tomatoes, beans, capsicums and other vegies produced in north Queensland that were hit by cool, wet weather in the quarter. Those price pressures have since eased as more supplies have arrived in shops and markets). Offsetting those rises, the ABS singled out falls in the cost of automotive fuel (–3.9%), motor vehicles (–1.0%), pharmaceutical products (–2.6%), domestic holiday travel and accommodation (–1.3%) and other financial services (–0.9%). No doubt the sharp rise will see the carbon tax doom and gloomers emerge (such as the federal opposition) later today to again inform us that the world is coming to an end as a result of the imposition of the tax. Treasury has estimated the tax will add 0.7% to the CPI in the current financial year. The ABS again made it clear this morning that it will not be estimating the impact of the tax by repeating comments made earlier in the year.
"On 1 July 2012, the Australian Government introduced a $23 per tonne carbon price on greenhouse emissions, to be paid directly by Australia's largest greenhouse gas emitting companies, together with compensation and incentive packages. Carbon pricing changes the relative prices of high and low emission-intensive goods. The ABS will not be able to quantify the impact of carbon pricing, compensation or other government incentives and will not be producing estimates of price change exclusive of the carbon price or measuring the impact of the carbon price."
The Reserve Bank's measures of core inflation, the weighted median and the trimmed mean (which strip out or adjust large price rises and falls) rose 0.8% and 0.7% (0.75% average) respectively in the quarter, to produce annual rates of 2.6 and 2.4 respectively (2.5% average).  They were up on the rises in the June quarter of 1.9% and 23.0% respectively.

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3 thoughts on “CPI higher than expected — but don’t blame the carbon tax

  1. Chess C

    “Blame higher electricity charges, not the carbon tax.” Said without a trace of irony.

  2. Chess C

    Glenn, just to spell it out. It’s indisputable that the near doubling of electricity prices over the last 5 or so years (excluding the price rise in July) has had nothing to do with the carbon tax, and everything to do with price gouging and (arguably) overinvestment by the power companies. However, the 15% price rise in electricity in July was directly caused by the carbon tax. My electricity company usually raises their prices in January, but this was a special price rise, just for the carbon tax, and they even sent me a letter saying so.

    On the upside my power bill actually went down. I opted out of green electricity, since the elecricity company couldn’t explain why they were passing on the carbon tax price rise to carbon-emissions-free electricity. And secondly there are companies which install energy saving switches in your home free of charge (they get a payment from the Victorian government for doing so). These energy saving switches cut my power usage by about 20%.

    I agree, that the doomsayers’ predictions of carbon tax inflation have been shown to be exaggerated, to say the least. But denying that the price rises in electricy and gas have been caused by the carbon tax is a little bit disingenuous. Also, I think we need to wait about one year, until we can definitively see how the carbon tax associated costs filter through the supply chain.

  3. AR

    And what hope that the electorate will grasp/believe the simple fact that the gouging is not due to the MM’s oft repeated line BigBadTAX, ably assisted in this deception by the shoutjocks?

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