Home > Current Affairs, Politics - Domestic, The EYE-BALL Herman O'HERMITAGE > EYE-BALL’s Herman on – Energy Debate – CPI Shocks the analysts – Rod Sims finally arrives like a Knight in Shining armour

EYE-BALL’s Herman on – Energy Debate – CPI Shocks the analysts – Rod Sims finally arrives like a Knight in Shining armour

October 25, 2012
Links to Previous ‘Herman’ Posts:

22nd Oct – 2012 Overture – Halloween – Glass half full

3rd oct – 2012 Overture: Twiggy – a metaphor for wafer thin margins … RBA further stimulates economy surprising the stock market!

2nd Oct – The All Ordinaries is a totally misleading index and Australia’s lack of domestic Savings!

18th Sept – A Microcosm of Our Democracy – Auburn City Council elections.

28th Aug – – 2012 Overture – The Northern Fall (Autumn) –

17th Aug:  – A Political Alternative – Australian Community Party –

Aug 6th:   – Shang Yang’s good governance – or is it good faith?

July 21st:   –  Micro Economics – Thoughts and opinions on the Energy Debate!!!

July 18th:   –  A Chronology of Farce – and of a Government who Wonders Why Their Opinion Polls are so low.

July 4th:   –  2012 Overture – The Northern Summer Arrives –

June 16th:   2012 Overture – The Greek Elections

June 2nd:   Creative Destruction …

May 26th:   White Collar Crime – Craig Thomson and Peter Slipper … or just Federal Parliament?

May 17th:   The 2012 Overture Act III

Apr 23rd:   An update on the French Presidential elections and other

Apr 21st:   A Philosophical Appraisal of Social Economic Index… to Capture Wider Social Well Being.

Mar 26th:   The 2012 Overture – A Crappy New Year – Part III.

Feb 14th: Democrazy Part XV – Clinging to Power.

To see more EYE-BALL ‘Herman’ posts:

click here …

– Energy Debate –
– CPI Shocks the analysts –
-Rod Sims finally arrives like a Knight in Shining armour-
| Author: EYE-BALL’s Herman | 22nd Oct 2012 |
Yesterday’s CPI number shows just how useless bank economists really are. There are several quite different components to CPI as a debate, and therefore multi -variate components. Multi-variate bordering on confusing, mindless and overwhelming. Yet CPI is used extensively in determining wage rises, or basing real pay increases, measuring our real increase in standards of living.

CPI is not specifically expected to replicate the average increase in household spending due to price increases. It is adjusted for several non domestic elements and the RBA only considers underlying inflation when deciding interest rate policy. CPI is too often beyond the average understanding, when real estate inflation is hardly included. Asset Inflation. Have median house prices over the last ten years any correlation whatsoever to CPI? The answer is yes but insignificant.

The basket of goods used by ABS is known. It can be replicated should anyone try. How many bank economists noticed that in late winter fruit and vegetable prices were sky high. Tomatoes were $10 a kilo. Capsicum were just as bad $12 a kilo. brussel sprouts were simply not in the market. Frozen or tinned substitutes for beans spinach, peas, broccoli or cauliflower were real.

As those bank economists live in an ivory world dining out while hearing others speak at the bigger conference centres did they stop to ask the chef about what he had just fed them? “Hey pal those minted baby peas were mushy, were they fresh?”

So hearing Rod Sims of ACCC on PM last evening was very refreshing. The Energy Users Association of Australia have not yet published Mr Sims speech, so I link here some press covering it.

Your household electricity bill is 35% driven by energy price hikes, 50% driven by delivery cost price hikes, and roughly 15% profit margin to the retailer. Very importantly the biggest component of recent gas and electricity price hikes (over the last 5 years) is increased delivery costs. Upgrading of transmission facilities. More than that those energy retailers build their case for price rises to the Pricing Regulatory Authorities on projected capital spend, not actual upgrading of transmission. Then the Pricing Regulatory Authorities fall for it. Weighted Average Cost of Capital is difficult, and what is a fair return on debt or equity? Each state is different like NSW has the least privatisation of the electricity industry and Victoria has the most. In NSW the government has increased their dividend from those State owned enterprises. Victoria is different.

So Rod Sims wants this item included on the next agenda for COAG. Good luck, you need to compete against Gonski education funding. Politically the grandness of Gonski is much more politically sensitive, our kids deserve it, isn’t that what you want for your kids, our next generation, yeah but who is going to pay?

In my writing on energy last July see this link

I wrote how:

“Therefore – this is NSW’s State Liberal government and its iPart v ALP Federal government and it’s ACCC”. Much more simply how can we get our kwh back towards 20c, therefore competitive?  Why is a Btu (or Kilo-joule if you insist) so expensive in Australia when we are a major exporter of gas to our competitors?

The sad part is how Australia can see it is a high cost producer comparatively on the world stage, yet cannot find the time or inclination to start addressing so much of the micro issues. Electricity cost affects every one of us. Farmers, miners, manufacturers, households and commerce. Gas similarly, but gas is also a feedstock to electricity generation. Therefore our bounty of gas does not lead to cheaper consumption price but more convoluted logics re parity pricing fair rate of return and ultimately higher household and manufactured cost.

Add renewal targets and inefficient brown coal electricity generation and we are starting to get the bigger picture. But those arguments are used to obfuscate.

Who outside the gas and fruit and vegetable industries understands the part played by ethane and propane in the growing process? Your tomato grower at Leppington needs to keep his seedling greenhouse at constant temperature during the late winter months. Prices are optimal pre Christmas and New Year. Ethane is used to artificially ripen. Most tomatoes are gassed, so are bananas, and without gas paw-paw would still be speckled the way they were 50 years ago. All paw-paw are packed green.

I cannot say anything good fort iPART. They are sycophants used by Macquarie St for political purposes. They are independent but only to the extent of being another voice purported in the political process. Try getting a job with iPART, you will be directly told you don’t have direct experience working in Pricing Regulation. Isn’t that an argument of inbreeding? We really only want those who think our way. Until hearing Rod Sims yesterday I would have said similar for ACCC. Constantly trying to prosecute collusive pricing, and predatory behaviours, but falling short constantly.

I could go on to ASIC, or APRA, or DPMC or a whole host of other government departments, but that is another story. Each different but ultimately unable to see the wood for the trees. Controlled by career bureaucrats, never subject to competition, one who is steeped in regulation and authority. Again an ivory towered world.

My predicted match between the Federal ALP’s ACCC and the Liberal state governments pricing authorities has only just begun. ACCC has clearly won the first round. Will iPart and its colleagues respond? I feel it is highly likely they will act as if nothing is going on. All of our governments simply want to fight over the diminishing spoils. Growing the GDP is left to private enterprise. At the next sober lunch at the Sydney Club, or the Businessman’s Club in Ainslie over Armagnac and brandied cigars, they will strike another deal of self interest to bolster their own interests and egos, thereby selling the Australian economy short.

That is why our leadership is nonsense. They are constantly missing the point. In the light of yesterdays CPI number we will hear another volley of questions in parliament about Carbon tax. Yes that is one of the feedlots, but not the only one.  Was the rise in fresh fruit and vegetables only seasonal? Partly. Is that seasonally adjusted? Yes Partly. Is that an argument worth having, what, “why do the banks economists live in ivory castles?” No “Will those prices revert in the December quarter or March quarter?” “What else will offset then?”

The politicians too will rely upon unsupported authority to support their arguments. “I was not born on the land etc”. “The government is showing their inexperience in child rearing”. Enough, Enough bovine excreta. No more lamb roasts or Carbon Tax or the sky hasn’t fallen in. For people not from the land (those politicians) they understand bovine excreta implicitly.

Believing in Sanity is itself insanity. Who was that economist who defined markets as a series of actions and reactions. I much prefer “Markets are a series of actions and therefore over reactions.”

EYE-BALL’s ‘Herman’ …

  1. Gerry Hatrick
    January 25, 2013 at 12:08 pm

    This weeks mean reversion of 0.2% quarterly CPI is answer enough. Enjoy those wonderful seasonal fruit and veg now, the Queensland torrential rains will see an abnormal spike in many Autumn prices. Owners of cold storage facility are licking their lips.

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