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Consumer Price Index- September quarter

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Today’s Consumer Price Index (CPI) data shows both headline and underlying inflation remain well contained within the RBA’s 2-3 per cent target band, and are consistent with Treasury’s estimate of the carbon price impact.

Today’s figures show that the CPI rose 1.4 per cent in the September quarter 2012, to be 2.0 per cent through the year. Underlying inflation was 0.7 per cent in the quarter, up from 0.6 per cent in the June quarter. In through-the-year terms, underlying inflation in the September quarter rose to 2.5 per cent.

The quarterly increase in headline CPI reflects the modest impact of the carbon price in addition to a number of seasonal and temporary factors.

The September quarter inflation outcome is consistent with Strong Growth, Low Pollution modelling published by the Government, which estimated that consumer prices would increase by a one-off 0.7 per cent in 2012-13. This expected impact is small compared with the impact of The New Tax System introduced in July 2000, which raised consumer prices around 2½ per cent. It is also small in the context of historical movements in consumer prices from year-to-year. It is estimated that most items in consumer budgets will increase by less than 1 per cent in 2012-13 due to the carbon price, such as food - where households are expected on average to spend only an additional $0.80 per week, compared to average household compensation of $10.10 per week.

Around half of the carbon price impact is expected to be in utilities such as electricity, for which we have already seen price increases in early July. This one-off impact is much smaller than the very substantial electricity price increases over the past few years which have mainly been due to investment in poles and wires and have been completely unrelated to the carbon price. The recent electricity price increases attributed to the carbon price by state and territory pricing regulators have generally been consistent with the 10 per cent estimated by Treasury modelling.

The Strong Growth, Low Pollution modelling estimated that electricity price rises attributed to the carbon price would contribute 0.3 percentage points to headline inflation in 2012-13. In today’s result, the increase in electricity prices (both from the carbon price and price increases from state regulators that are unrelated to carbon pricing) contributed 0.3 percentage points to quarterly inflation, which suggests the impact of the carbon price on electricity was well-within the Treasury estimate. The overall increase in electricity prices in

the September quarter was 15.3 per cent, reflecting both the carbon price and the other decisions of regulators about costs that are unrelated to the carbon price, such as the cost of poles and wires.

The September quarter result also reflects a number of seasonal or temporary price rises.

Fruit and vegetables prices rose by 10.2 per cent in the quarter, resulting from unfavourable weather conditions across several states. Fruit and vegetables prices contributed 0.2 percentage points to quarterly growth in the CPI.

Health prices also rose 2.4 per cent, and there was a 6.6 per cent increase in international travel and accommodation prices.

The September quarter result was partially offset by falls in the price of Transport. Transport prices fell 0.8 per cent in the quarter, to be 1.3 per cent higher through the year. Automotive fuel prices fell 3.9 per cent to be 0.2 per cent lower through the year, broadly in line with movements in international oil prices.

The Government is providing assistance to households to meet additional costs from the carbon price through a significant tax reform package and increases to payments including pensions, allowances and the Family Tax Benefit.

Nine in ten households are receiving a combination of tax cuts and increased payments to help them with the cost of living impact of the carbon price. Over 4 million households will get assistance that is at least 20 per cent more than their expected average price impact from the carbon price. The carbon price will drive investment in clean energy, strengthen our economy and protect our environment for future generations.

Today’s result reaffirms Australia’s strong economic fundamentals that stand in stark contrast to the developed world. In addition to contained inflation, we have solid growth, low unemployment, lower interest rates, and we have strong public finances with a budget returning to surplus this year.

24 October 2012


Contacts: Ryan Liddell 0427 225 763