Oil price may flow to CPI

The Chamber of Commerce and Industry WA believes this year’s higher oil prices will only become inflationary if the price of crude continues to rise over the longer term.

Data from the most recent price reporting period suggests that the oil price is making its way through the economy, with higher producer price index figures released this week and last week’s announce-ment of a 10 per cent rise in sea freight fuel surcharges.

Expectations of an annual Consumer Price Index figure of 3.1 per cent were being reported as WA Business News went to press, supporting a Reuters survey of economists last week.

This figure is just outside the Reserve Bank’s target band of between 2 per cent and 3 per cent a year, stirring some fears of an interest rate rise.

However, any rise in the CPI due to oil could simply reflect a one-off in economic terms, as the oil price seems to have stopped rising for the moment.

After breaking through $US70 a barrel in August, the price of crude oil has retreated to about $US60 this month.

Interest rates aside, the Australian Bureau of Statistics producer price index rose 6.5 per cent in the first stage of production in the 12 months to the September quarter.

The quarterly rise of 3.4 per cent was almost twice that of the previous quarter and the highest since June 2001.

Imports in this production stage were up 4.7 per cent in the quarter and 9.2 per cent for the year.

Acting CCI WA chief economist John Nicolaou said the effect of rising fuel prices on consumer prices would obviously depend on the extent to which fuel-dependent businesses passed on higher costs to consumers.

Between the June quarters of 2004 and 2005, Perth’s CPI rose by 3.8 per cent, compared with 2.5 per cent nationally.

The Reserve Bank will reveal its position on oil next month, when it makes its quarterly statement on monetary policy.