Tuesday, August 07, 2012

Truth time. How much has the great big new tax pushed up the cost of living?

Tony Abbott said its impact on the cost of living would be “almost unimaginable.” Joe Hockey said it would “drive up the price of everything.” National’s Senate leader Barnaby Joyce said it would force working mothers to pay “over $100 for a roast.”

Yet the first figures in on the price impact of the carbon tax show its effect contained and inflation shockingly low.

The privately compiled TD Securities Melbourne Institute price index barely moved as the carbon tax came in in July. The total increase for the month was 0.2 per cent, taking the annual rate of inflation to just 1.5 per cent - the lowest in three years.

TD Securities compiles the data monthly because the Bureau of Statistics will not. Its quarterly measure of inflation over the first three months of the carbon tax won’t be released until late October.

But the TD gauge has a good record of tracking the ABS consumer price index. Over the past decade it is said to have been accurate to more than one hundred thousandth of a per cent. If what it has discovered is borne out in the official survey Australia won’t have much inflation at all when the impact of the carbon tax is officially tallied up.

Its findings aren’t because energy prices didn’t rise. It reports a jump in electricity prices of 14.9 per cent and a jump in household gas prices of 10.3 per cent, almost all of which would have been due to the carbon tax. But the little-appreciated reality of consumer spending is that by themselves electricity and gas aren’t very important in household budgets. Combined, they make up 2.7 per cent of consumer spending. In contrast meals out and takeaway food account for 5.5 per cent and alcohol 4.8 per cent.

While electricity and gas prices were going up other more important prices were falling. Petrol slid 2.7 per cent, insurance and financial services 0.7 per cent and local travel 2.7 per cent, mainly because of cheaper air fares.

Economist Stephen Koukoulas who helped create the TD Securities index said the carbon tax appeared to have pushed up the cost of living 0.4 per cent, meaning without them the inflation gauge would have fallen 0.2 per cent in July.

The outcome is consistent with the Treasury forecast of an inflation impact of tax of 0.7 per cent over twelve months.

TD Securities research chief Annette Beacher said future impacts would most likely be smaller...

“The immediate impact was always going to be on electricity and gas prices, because they are things that can be adjusted with a keystroke,” she told The Age. “In future we will be looking at delayed first round effects which could include things such as air fares which at some stage will have to reflect the increased cost of emissions. Later there will be second-round impacts on the cost of meat and other things that will be harder to measure.”

The Australian Meat Industry Council revealed Monday it had written to butchers “strongly” recommending they did not claim any price increases were the result of the carbon tax and suggesting they did not display advertising material to that effect provided by the Coalition. “If you cannot justify your claim you may be subject to a substantial fine,” the circular said.

Coalition climate change spokesman Greg Hunt told the Age / Herald the price rises would “take time to flow through the economy,” but said businesses were “starting to report major price rises that will have to be passed on to customers”.

“This is just the beginning as the Carbon Tax goes up every year,” he said.

In today's Canberra Times, Sydney Morning Herald and Age

TD Securities July 2012 Inflation Gauge

Suggested Reading:

. Martin C Jones, In an otherwise good article Peter Martin wrote...

. Since the carbon tax started, Koukoulas update 5

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