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Pollution tax stokes Australian inflation
by Staff Writers
Sydney (AFP) Oct 24, 2012

Australian inflation came in ahead of forecasts Wednesday, rising a seasonally adjusted 1.2 percent in the September quarter as electricity prices jumped following the introduction of a pollution tax.

The Australian Bureau of Statistics said the consumer price index was 2.0 percent higher on-year as power prices rocketed 15.3 percent.

Analysts had expected quarter-on-quarter inflation of 1.1 percent, and 1.7 percent over the year.

The spike in electricity prices followed the introduction on July 1 of a Aus$23 per tonne (US$24) tax on pollution linked to climate change. Australia's coal-fired power stations are big emitters.

Apart from electricity, the bureau said the prices of gas and other household fuels, vegetables, international travel and medical and hospital services were the major drivers of the bigger-than-expected increase.

Treasurer Wayne Swan said the impact of the tax was "well within our expectations" and the "great bulk" reflected price hikes over and above the pollution levy to pay for new infrastructure like electricity poles and wires.

"Electricity prices have risen over 50 percent over the past four years, and that has been unrelated to carbon pricing. That's five times the expected impact of the carbon price," Swan told reporters.

The treasurer said overall prices were well contained, with the impact of the new tax to be "temporary".

Underlying inflation, a measure that strips out volatile items and is used by the Reserve Bank of Australia in determining monetary policy, was up 0.75 percent in the quarter and 2.5 percent on an annual basis.

That is well within the bank's 2.0-3.0 target range.

The Australian dollar jumped to US$1.0303 from $1.0271 on the data, seen as reducing the chances of an interest rate cut in November.

"It's still well behaved, core inflation, but it is moving up a little bit faster than we anticipated and you'd have to argue that there is a bit more broad-based strength in prices," said RBC Capital Markets economist Su-Lin Ong.

"The market is going to question whether there is another rate cut on the cards."

Australia's central bank cut rates to 3.25 percent this month -- their lowest level since the height of the global financial crisis -- in a bid to shore up the economy against a weakening outlook.

Canberra cut its growth forecasts to 3.0 percent in a budget update this week, down from 3.25 percent forceast in May, also trimming its budget surplus predictions as demand slows in key market China and Europe struggles.


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