One thing notably absent from Philip Lowe’s explanation of why the Reserve Bank of Australia hiked interest rates for a seventh straight month was any mention of energy.
Yes, inflation was “too high” and it was “putting pressure on the budgets of many households”. But the Reserve Bank governor did not single out electricity or gas prices as key culprits prompting the RBA on Tuesday to hike its key interest rate another 25 basis points to 2.85%.
At a dinner speech in Hobart on Tuesday, Lowe made just one reference to the likelihood next year of “very large increases in the prices that households pay for gas and electricity”. Energy got two mentions – but only to highlight Australia’s blessed prospects for the clean version rather than fossil fuels.
So why has so much focus since last Tuesday’s federal budget been on energy? If there’s an inflation dragon to be slain, as the treasurer, Jim Chalmers, put it, why isn’t it more prominent for the slayers-in-chief at the central bank?
One reason is the budget was almost, by definition, bland. Chalmers could hardly break many promises on his first outing. More spending would only have compelled more RBA rate hikes.
The forecasts for energy price rises, too, were shop-worn. Most of the 20% for this year is already turning up on quarterly power bills and the 30% projected next year had already been flagged by the likes of the Alinta Energy CEO, Jeff Dimery, weeks earlier.
And the potential for big manufacturers to go bust because of what Victoria’s energy minister, Lily D’Ambrosio, called the “obscene” profiteering of gas companies charging multiples of what it costs to extract the fossil fuel, should not be downplayed.
Energy only makes up part of the 4.4% utilities share of the basket that makes up the consumer price index – less than the 5.45% weighting for alcohol. Increases in the cost of electricity and gas are less to blame for the cost of living squeeze than many other components.
“In reality, for most Australian businesses and households, energy is a pretty small part of their overall costs,” Alan Pears, a veteran energy expert with RMIT University, said.
“The average household spends a lot less on energy than on transport, or their food, and just about everything else.”
Catherine Birch, a senior economist at ANZ, crunched some numbers for Guardian Australia on how much more households were spending on a range of items.
Assuming the gas and electricity prices as outlined in the budget flow through, the average household will be forking out about $106 more a month in June 2024 than two years earlier.
However, if the ANZ is right about how high the RBA will go – lifting the cash rate to 3.85% by next May, the average extra mortgage cost eclipses energy bills.
For those with an average-sized loan of $589,000 over 30 years, the extra repayments amount to $1,370 a month. That’s almost 13 times more than gas and electricity.
For the third of the population that rents, the news isn’t much cheerier. SQM estimates capital city average rent has increased by $446 a month for all houses and $386 a month for all units, Birch said. Again, multiples of the energy cost increase.
With the rise in the cost of food and non-alcoholic beverages between September 2020 and September 2022, the average household is digesting an extra $126 a month. And that’s before the full effect of the ongoing floods is felt.
Automotive fuel has attracted headlines as well. Between December 2019 and March 2022, before the Morrison government’s fuel excise pre-election “sweetener”, the extra cost was $52 a month, Birch estimates.
Higher insurance premiums, tolls and other costs would erode some of that category’s advantage over energy use in the home.
Pears says that energy bills will vary over the year, such as landing as big winter imposts in cold climates and large summer ones in hotter regions, amplifying their apparent effect.
And, for a lot of people, the bump up in energy prices “can be enough to trigger them” into financial distress. The visibility of energy gets extra weight because governments do not get re-elected if the lights go out, he says.
However, with the spread of solar panels across about a third of our rooftops, high electricity bills are something many of us can do something about – unlike refining our own fuel or growing much more than herbs or tomatoes.
