Monday, April 24, 2006
Excuse me, Mr Costello!
To be sure there are some pretty big oil supply issues – tension in/with/over Iran, Nigerian extraction is down, Venezuela remains touchy and Iraq is not yet at production capacity.

But crude demand is soaring, hence prices are rising; to $75 per barrel overnight. This is not quite the real price reached in 1979, following the Iranian Revolution ($88.72 adjusted for inflation), but a continuing price rise seems now inevitable.

Last year, The Economist magazine explained why rising oil prices are not quite the danger to general inflation as they once were; pointing out that economies now using oil more efficiently at the margins and we live in a more service-orientated economy, using more brain power rather than hydrocarbons.

But obviously oil price rises are inflationary and many services on which we rely and expectations we have are built on access to relatively cheap and abundant oil. Travel, food production, consumer products, global trade etc.

A recent meeting of the G7 finance ministries declared that there is enough potential for this current oil shock to knock the global economy off its steady course.

Figures out in Australia have also revealed that supply prices are now rising, with a potential to feed into consumer price inflation, causing higher wage demands and demand for other services to fall and beginning an inflationary cycle.

Federal Treasurer, Peter Costello, recently conceded this:

“Now, we're living through a very difficult time here. We're basically living through another oil shock. World oil prices are at all-time records. The first two oil shocks. back in the '70s, set off a wave of inflation. We have to be absolutely vigilant that this oil shock doesn't set off a wave of inflation.”

However, Costello is upbeat. He said “I believe we can contain it,”

But actually, when he means ‘we’, he really means Australian business. He continued “as long as businesses that use petrol don't use that as an excuse to move secondary prices, because then you would get a second movement back into the Consumer Price Index.”

Err, excuse me, Mr Costello….. I am not sure it is the role of the Federal Treasurer, let alone the Federal Treasurer of a Liberal government, to be telling businesses which costs they can and can’t pass on to the consumer!

Alternatively, if our Treasurer is such a fan of socialistic policy levers, like price controls, it is the taxpayer who should foot the bill, not business.

This quite blatant and unwarranted buck-passing is designed to get Costello and his dickhead colleagues in government off the hook, if [when] things go belly up.

This government has built its electoral base on the back of steady economic growth, due in equal parts to a growing population, a raging resources sector and access to easy energy. Now this is all at risk of crumbling, the government is looking very keen to distance themselves from the causes.

Suddenly inflation will be the fault of ‘greedy business’ and an ‘external oil shock’ which will be ‘beyond the control [fault] of this government.’

But these are straw man arguments. If the Australian economy begins to suffer from inflationary pressures promulgated by rocketing oil prices, the government only has itself to blame; for its unpreparedness, its greed and failure to adopt more sustainable energy policies.

Costello should shut up and get on with building a more resilient economy.

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