The Reserve Bank of Australia will likely “see through” the inflation effects of a carbon tax proposal announced yesterday by Prime Minister Julia Gillard, said economist Warwick McKibbin, an RBA board member.
Gillard’s estimates of a 0.7 percentage-point rise in inflation “sound about right to me and I think the central bank will see through the price effects of this and it will have no impact on policy,” McKibbin, a professor at Australian National University in Canberra, said in a Bloomberg Television interview.
Qantas Airways Ltd., Australia’s largest airline, said it will raise fares, and electricity and gas costs are likely to climb after Gillard unveiled a tax on carbon dioxide emissions and an increase in the excise on aviation kerosene. The central bank, which aims to keep inflation in a range of 2 percent to 3 percent on average, will likely monitor broader price moves and wage demands to ensure there isn’t a sustained inflation impact, economists say.
“Evidence of persistently higher prices and wages could add to the medium-term pressure for the RBA to lift the cash rate in order to ensure inflation is consistent with target,” said Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney.
Australian inflation expectations increased to the highest in a month, according to swaps linked to changes in consumer prices. The rate on five-year inflation-linked swaps climbed to 2.95 percent as of 1:06 p.m. in Sydney, the highest since June 8, from 2.89 percent on July 8, according to data compiled by Bloomberg.
RBA Governor Glenn Stevens on July 5 held the overnight cash rate target at 4.75 percent, the seventh straight meeting of inaction. He said consumer-price growth is expected to be near the RBA’s target range in the next year.
Consumer prices in the first quarter were 3.3 percent more than a year earlier, according to government figures on April 27. First-quarter prices surged 1.6 percent from the previous three months, the most in five years, as natural disasters boosted food costs and Middle East unrest drove fuel bills higher.
A report on second-quarter consumer prices is scheduled to be released July 27.
Inflation is likely to accelerate to a four-year high of 4 percent next year, assuming the majority of price adjustments take place at the commencement of the carbon tax on July 1, 2012, Roland Randall, an economist at TD Securities Inc. in Singapore, said in an e-mailed note.
“Headline inflation rate is unlikely to fall from above the 3 percent target band upper limit through 2013,” he said.
Qantas said the carbon price system would have an estimated cost impact of about A$110 million ($118 million) to A$115 million on the Qantas Group in the financial year ending June 30, 2013. It plans to fully pass on the costs to customers, the Sydney-based airline said in a statement today. The stock fell 2 percent at 11:35 a.m. in Sydney.
Brickworks Ltd. said it expects brick prices may rise as much as 6 percent, according to a statement sent to the stock exchange.
“I don’t think it’s going to destroy the economy, but the problem is it’s potentially a very risky policy,” McKibbin said. “It’s important that we have a carbon price in Australia. I think this policy, though, is far from the best way to achieve that goal.”
McKibbin, whose term on the central bank’s board ends July 30, said “the biggest risk it causes is the fiscal uncertainty.”