Economy

Petrol price relief… Business hits the trenches for IR… Carbon permits’ winners and losers… Odds shorten on a rate rise…

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Petrol rices down, for now

Outrage over petrol prices by motoring groups, political leaders and the competition regulator appeared to do what the market couldn’t over the long weekend: bring petrol prices down.

The chairman of the Australian Competition & Consumer Commission, Graeme Samuel, last week called for a “fair go” from petrol retailers after petrol prices hit about $1.40 a litre, even though wholesale prices had fallen.

One week later, average petrol prices in metro areas across the country have fallen to between $1.27 and $1.29 per litre.

But, according to a senior analyst with the Royal Automobile Association of South Australia, Matthew Hanton, even the $1.27 price is above what it should be on a Tuesday, traditionally the cheapest day of the week for buying petrol.

“There’s no doubt $1.27 is better than the $1.39 we saw last week but we still believe that’s a cent too high. The industry operates on a discount cycle with prices 10–12¢ above wholesale on Thursday but they should be at or very close to wholesale on Tuesday and that’s $1.25 to $1.25 to $1.26 at the moment,” Hanton says.

Even as prices come down, however, an important question remains: are constant rounds of public pressure required to get petrol retailers to charge fair prices? There must be a better long-term solution.

Hanton says beefing up the ACCC’s powers would be an important first step. He says the ACCC should be able to initiate its own investigations into petrol prices — at the moment a government directive is required before action can be taken — and heftier penalties should apply to convicted price fixers.

The ACCC’s Samuel has also called for extra penalties, including jail terms, for those engaged in price fixing and will meet with the Federal Government this week to discuss what more can be done to better regulate the fuel market.

(On Friday, SmartCompany reported that the head of the Australian Automobile Association, Mike Harris, said the ACCC should have the right to inspect retailers’ financial records.)

But Hanton says a wait-and-see approach should be taken to Labor’s proposal for dedicated petrol price commissioner within the ACCC.

“We need to see the detail to know if something like this is a good idea or not, it’s easy for them to say that’s what they’ll do and that’s fine, but we think the ACCC has many of the powers it needs at the moment, it just needs to be able to act.

– Mike Preston

Business hits the trenches for IR

Australia’s business groups appear to be falling into line behind the Howard Government’s IR laws, with the Australian Chamber of Commerce and Industry giving the tick to what could be a multi-million dollar advertising campaign.

Pressure began building on employer groups to fund an advertising campaign advocating their position on IR after an Australian Council of Trade Union-backed advertising campaign attacking WorkChoices was launched last year. The union campaign has widely been seen as effective in influencing public opinion against the laws.

The National Retail Association is one group backing the campaign. NRA chief executive Patrick McKendry says he understands that the Business Council of Australia will also back the ACCI campaign, but was not sure whether the Australian Industry Group would have any involvement.

“Since the release of the ALP’s IR policy the groundswell of concern on the part of our membership means that we’ve decided that it is appropriate to be involved in a campaign on the issue,” McKendry says.

– Mike Preston

Carbon permits winners and losers

Businesses and consumers will have to pay more for electricity under any effective carbon trading regime. This is not a pleasant reality, but as long as the full benefit of the cost flows through to improved environmental outcomes, it is one many will be prepared to live with.

But now there are reports that the states and the Federal Government are refusing to rule out taxing carbon permits. According to the Australian Financial Review, premiers have refused to rule out levying a stamp duty on carbon permit transfers under any future carbon trading system. And federal Treasurer Peter Costello, for his part, resorted to fudge and obfuscation when asked whether capital gains tax would apply to the permits.

Despite the cost, the business community has been prepared to get behind the push for a sensible carbon emissions reduction policy because it is in the community interest. There will be understandable outrage if governments of any description turn the introduction of carbon trading system into a revenue raising opportunity.

– Mike Preston

Interest rate rise more likely

An overheating economy and the federal election due later this year could force the Reserve Bank of Australia could be forced to increase interest rates as soon as July.

Although recent wages growth and inflation figures have been moderate, last week’s very strong 1.6% quarterly GDP growth figure has triggered speculation that the RBA will feel it must increase interest rates this year if it is to prevent the economy boiling over.

The problem is, if RBA governor Glenn Stevens wants to avoid having to lift interest rates in the pressure cooker environment of a federal election campaign, he will have to make a decision on interest rates soon, with some observers suggesting July or August as prime months for a pre-election interest rate rise.

On the other hand, while the economy continues to grow steadily we are yet to see any real signs of overheating. Today’s NAB Business Survey for May show business conditions and confidence at a strong but steady level, but importantly, it has wages growth and purchase cost inflation edging down in May.

Even capacity utilisation, a key measure of businesses ability to meet consumer demand, is down 0.1% – although its 83.2% level remains well above historical averages.

Also reassuring are federal enterprise bargaining outcome figures released by the Australian Bureau of Statistics today. They show wage rises in new agreements in the March 2007 quarter eased from the December 2006 paying an average annualised wage increase of 3.7% compared to the previous quarters 3.8%.

At 12.55 pm the S&P/ASX 200 was trading up 0.4% to 6259.7 and the Australian dollar was trading at US84.33¢, up on the most recent US84.16¢ close.

– Mike Preston

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