When interest rates rise next Tuesday and again in December or February, you can blame State Governments for approving huge price rises for gas, electricity and water.
Forget all the talk in financial markets about ‘rate rise looms’ and focus on the fact that half the 1% rise in the September quarter can sheeted home to those higher utility charges, especially electricity.
The Reserve Bank might have been tempted to lift rates again after October’s rise of 0.25%, but the higher than expected inflation figures, courtesy of those higher state charges, has made it a certainty.
Consumer price inflation was up a bit stronger than expected in the June quarter at 1%, giving an annual rate of 1.2%, but that is not the true picture.
That is double the 0.5% rise in the June quarter, when the annual rate was 1.5%.
And much of the rise is down to the higher power, gas and water charges waved through by the states.
Some would call the double digital price rises waved through as price gouging.
The price rises were double digit, much larger than anything else in the quarter.
As a result, we will all pay. If price rises for utilities had been kept to a much small level, inflation would have fallen sharply, taking the pressure off rates.
Macquarie Bank’s Rory Robertson says we can expect a 0.25% rate rise next Tuesday.
"Further 25bp hikes remain likely in December and February, taking the cash rate to a "still-easy" 4%.
"If the economy continues to improve over the RBA’s traditional summer break, there’s a risk it could upsize that February hike to 50bp.
"By contrast, the risk of a 50bp hike next Tuesday seems tiny."
The housing group of costs was the major influence in driving the rise: housing costs jumped 2.9% in the quarter, the highest by far.
And the Australian Bureau of Statistics had no doubt when it said in its commentary:
"The housing group recorded the largest positive contribution due to strong rises for all expenditure classes. The most significant contributor was the increase in electricity prices across seven capital cities, most notably in Sydney and Darwin."
"The most significant price rises this quarter were for electricity (+11.4%), automotive fuel (+4.0%), water and sewerage (+14.1%), deposit and loan facilities (+3.0%) and house purchase (+1.1%)," the ABS said in its commentary
The areas that produced the "most significant offsetting price falls were for other financial services (-2.3%), vegetables (-5.6%), fruit (-5.4%), pharmaceuticals (-4.4%) and audio, visual and computing equipment (-2.2%)".
"At the All groups level, the CPI rose in all capital cities this quarter. Among the cities recording a positive movement, Darwin registered the highest increase with a rise of 1.9%, while all other cities were in the range of 0.6% to 1.2%."
"The main contributor to the increase in housing costs this quarter was the increase in the price of electricity (+11.4%) followed by water and sewerage (+14.1%), house purchase (+1.1%), property rates and charges (+5.7%), rents (+1.2%), gas and other household fuels (+2.7%) and house repairs and maintenance (+0.8%).
"Over the twelve months to September quarter 2009, the housing group rose 5.5%, with the main contributors being rents (+6.2%), electricity (+15.6%), water and sewerage (+14.9%) and house purchase (+1.7%)."
Over half that 5.5% rise came from the September quarter’s 2.9% jump.
In some states those utilities are state owned (NSW for example); in others they are privately controlled (Victoria, for example).
But in every state the Government or a so-called independent pricing review tribunal or organisation vets the price rise applications and either allows them, or rejects them.
As we saw in the Producer Price figures on Monday, many of those price rise applications were approved (In NSW its part of rebuilding the broken finances of the power business prior to privatisation next year).
The ABS said then that the biggest influence on the rise in the final stage PPI was "mainly due to price increases in electricity, gas and water (+12.1%)." That helped boost (along with the higher bakery costs) the domestic final stage PPI by 1% in the quarter.
The Reserve Bank’s preferred measures, the Weighted Median and Trimmed Mean both rose at a slightly slower rate than the headline figure in the quarter up 0.80%. But for the 12 months to September, both were up 3.8% and 3.2% respectively.
That’s down on the levels in the June quarter.
