Today's figures confirm inflation remains contained and this is despite the modest impact of the carbon price that we had always anticipated. And of course there are a number of other temporary factors impacting on the figure today. The figures show that annual headline inflation increased from 1.2 per cent in the June quarter to be 2 per cent over the year to September. CPI inflation increased in the quarter, up 1.4 per cent in part reflecting the impact of the carbon price that we expected, but also as I said before, a number of other temporary factors. Consistent with Treasury modelling, carbon pricing is only expected to result in a one-off 0.7 per cent increase in consumer prices in 2012-13. To put that into some perspective, this is less than a third of the price impact from the GST under the Liberal Government.
We've always been up front about the impact of carbon pricing on inflation and that is why we have provided household assistance to nine out of ten households. Two in three Australians will receive assistance that covers 100 per cent or more of the expected impact of the carbon price through tax cuts or increased payments. Utility prices are expected to account for around half the total impact from the carbon price, and we expect that much of this has already occurred.
The recent pricing decision by state regulators show that our estimate of the impact on electricity prices is pretty much spot on. They've been in line with the ten per cent increase estimated by Treasury modelling, and below in some cases. But the increase in utility prices this quarter also reflects decisions by state regulators to increase prices over and above the impact of the carbon price for items such as increased network charges – that is poles and wires. As a result, electricity prices rose 15.3 per cent in the quarter contributing 0.3 percentage points to quarterly CPI inflation. At this stage the result remains well within our expectations of the carbon price impact on electricity with Treasury modelling factoring in a 0.3 percentage point contribution in 2012-13 due to the carbon price impact alone.
Now I think electricity prices have risen over 50 per cent over the past four years, and that has been unrelated to carbon pricing. That's five times the expected impact of the carbon price, and of course that's been pretty tough on households. The Treasury expects the overall impact of the carbon price on inflation to be modest and to be temporary. Of course, contrary to the campaigns that have been launched by the Liberal Party, there is nothing in today's figures that suggest any evidence of a significant, broad-based price increase due to the impact of the carbon price. Of course the carbon price is not the only influence you see in the figures presented today. There are a number of seasonal and one-off factors which are also impacting on family budgets as well. For example we've seen a 10 per cent increase in fruit and vegetable prices, which the ABS has said has come from unfavourable weather conditions which have impacted on a number of crops in a number of states such as bananas and tomatoes.
We've also seen recreation and culture prices boosted by a seasonal increase in international travel prices, which coincides with the peak travel season. Now despite all of these influences, inflation does remain contained overall. It's encouraging to see that underlying inflation remains in the middle of the Reserve Bank's target band at 2.5 per cent, with the quarterly result entirely consistent with the forecasts that are there in the mid-year budget update delivered on Monday.
One of the reasons inflation remains contained is the Government's strict fiscal policy, the Government's strict budget policy is giving the Reserve Bank room to move when it comes to monetary policy. The benefits of returning to surplus are already clear and you can see that with the cash rate 150 basis points lower than it was 12 months ago. This means for example that an Australian family with a mortgage say of $300,000 is now paying around $4,500 a year less than when the Liberals were last in government. I guess that's not surprising because when the Liberals left office official interest rates that were more than double what they are today. Because then inflation was not contained there had been ten interest rate rises during in a row on their watch.
That's a matter for the RBA. But as I've said on many occasions, the reason we should bring our budget back to surplus given our current economic conditions is to support employment and growth and to give maximum flexibility to the Reserve Bank to cut rates should they take that decision independently which they always do.
How important is a rate cut in November, for I suppose confidence in the economy, confidence for customers … (inaudible)?
As I said, entirely a matter for the Reserve Bank. Rates have come down 150 basis points over a period of time. I think that's welcomed - welcomed by business, welcomed by households with mortgages. It's a decision for the Reserve Bank to take.
I can't give you a precise figure but we can see in the determinations that have been taken by the authorities that the Treasury estimates of the impact on electricity of about 10 per cent would be reflected in the figuring we're seeing here today. Roughly 10 per cent. We won't necessarily have all of the impacts of the carbon price in this quarter, we'll certainly have the great bulk of it.
Certainly what is unexpected and what Australians have had that has been unexpected has been the massive increase in electricity prices which has come from decisions which have been taken by the suppliers of electricity over a period of four or five years. That's where the great bulk of the increases to electricity have come from. We always said there would be a temporary impact of the carbon price, it would pass through the system, it will have about a 10 per cent impact on electricity prices for the average household of about $3.30 per week. That's why we provided average compensation of about $10.10 per week, to make up for the increases that flow through the system and that's what we've provided.
(Inaudible)… full impact by the end of the financial year?
Well certainly it will pass through relatively quickly, that's true.
That's entirely a matter for the RBA, but what the RBA has said - and I think we should keep this is mind - is they'll look through the temporary impact of the carbon price. They've said that repeatedly in the past and that's what they'll do. That's what they did for example when the GST was introduced as well.
I'll just slightly correct that. The fact is that we do know from the decisions of state regulators that our estimate of the impact of the carbon price on electricity has been reflected in the decisions taken by the state regulators – around 10 per cent, give or take a bit across different states. But we are seeing here an increase in electricity prices which is over and above that 10 per cent. In answer to the previous question, I said it wasn't possible to say absolutely that the full impact was there in the quarter and there may be a small spill-over to the next quarter, but it is temporary and it passes through the system.
Well of course, they've accounted for the impact of the carbon price in their current round of decisions.
They are putting up electricity prices for reasons over and above the carbon price, because they have over–invested, many would say, in poles and wires. That's why there has been such a dramatic increase in electricity prices, absent the carbon price, and that data is out there and it's not contestable. The great bulk of increases in electricity prices that Australians have borne over the last four or five years has had absolutely nothing to do with carbon pricing and that is confirmed yet again by the data that we have seen here today.
Do you think the message is getting through to households?
I think households now understand that state authorities have been taking decisions to jack-up electricity prices and they've got very little to do over a very long period of time with carbon pricing. I think people do now understand that.
We're not expecting a significant jump in the next quarter's figures as a result of carbon pricing at all.
Should Craig Thomson stay in Parliament after his house has been raided today?
These are matters for the police and I don't intend to comment on them at all. They are handled appropriately by the police, that's the way it should be.
When does it become an issue for the Government then? A member of parliament is out being raided.
This is not the first time it has happened. For example, Mr Laming, the current member for Bowman, was a subject of some allegation some time ago and they were handled by the police, as they should be and that's the way it should be on this occasion.
Will you continue to accept his vote?
On the last occasion that Mr Laming was the subject of allegations, the Liberal Party said it was appropriate that he should remain in the Parliament.
(Inaudible)… threatening Tony Abbott with defamation?
That's a matter for Mr Thomson.
Are you still committed to a surplus under any circumstances?
I've made this point repeatedly that we will put in place the appropriate budget policies to support jobs and growth in the Australian economy. Thanks a lot.