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Australian power consumers have just started opening their winter power bills, which are fully 20% higher than this time last year. By comparison, Australia’s underlying rate of inflation is around 1.5%.

The consequences for the economy, as a whole, are just starting to bite.

Restaurants, bars and retailers are copping it from both ends.

Business customers – often on retail power contracts with fixed prices for two or three years – are watching their power costs almost double, as they enter new contracts with prices fixed at the current rates.

And the customers who consume what these businesses hope to offer, have been forced to cut back on expenditure, simply to be in a position to pay their own rocketing power bills. Some might call it a vicious circle.

STT calls it a self-inflicted economic suicide.

Shoppers stay away as power costs bite

Adam Creighton

The Australian

6 October 2017

In a sign sluggish wages and higher power prices are starting to bite, the new financial year has seen the biggest fall in retail sales since 2009, fuelling concern the economy isn’t as strong as the government’s forecasts imply and casting further doubt on the prospect for Reserve Bank interest rate increases.

The Australian dollar fell back towards US78c yesterday after the Australian Bureau of Statistics revealed retail sales had fallen 0.6 per cent between July and August, defying economists’ expectations they would rise modestly.

“It was a shocker,” said Commonwealth Bank economist Gareth Aird, pointing to the broad declines in spending across all states, especially in Victoria and Queensland, and business sectors. Spending at cafes and restaurants, one of the strongest growing retail sectors in recent years, fell 1.3 per cent between July and August.

“We are always reticent to put too much emphasis on any one figure, but it now looks increasingly likely that strong sales growth in April and May were the anomaly in 2017,” he said. That strong growth had helped the economy grow 1.8 per cent over the year to June, in line with the government’s May budget forecasts, which had been criticised for being too optimistic.

The budget has assumed household consumption will rise 4.75 per cent this year. Retail sales (which make up about half of household consumption) are rising at only 2.1 per cent, though, down from 3.8 per cent in May when the budget was released.

“Households are facing several headwinds, including record low wage growth, record levels of debt, slowing house price growth, and, importantly, sharply higher energy bills,” said ANZ economist Jo Masters.

The drop in retail sales by a cumulative 0.8 percentage points over the two months to August, the biggest two-month decline since 2009, comes as consumers receive their first round of power bills after prices went up more than 20 per cent since July.

“The outlook isn’t encouraging either, with the full effect of higher energy bills yet to be felt,” said Capital Economics chief economist Paul Dales.

Department stores were the only category to see a rise in spending between July and Aug­ust, after a terrible few months. Economists expected retail sales to rise 0.3 per cent in August.

“The weakness in retail sales supports our long-held view that a slowdown in consumption growth is one reason why the RBA won’t raise interest rates at all next year,” Mr Dales said. The Reserve Bank left the cash rate on hold at 1.5 per cent this week for the 14th month in a row, resisting any temptation to signal future rate increases. The RBA isn’t expected to lift rates until May next year at the earliest. “While monetary policy remains highly accommodative, household interest payments as a share of income have been edging up since the last rate cut because the stock of debt is growing faster than income,” Mr Aird said.

The IMF this week said rapid increase in debt, the kind Australia has been an example of since 2012, would weigh on consumption in future years.

While bricks-and-mortar retail spending fell in August, online retail spending, which is about 7.5 per cent of traditional spending, rose 1.7 per cent. “The retail sector is undoubtedly facing challenging times given the impact of competitive pressures on pricing,” she added.

It wasn’t all gloom yesterday, however — August produced a $1 billion trade surplus on the back of rising iron ore sales, stronger than expected and up from $800 million in July.

“What the weak retail sales data have taken away from third-quarter GDP with one hand, the stronger trade data have given back with the other,” Mr Dales said.

The Australian

The glib and un-panicked manner in which much of Australia’s business community seems to deal with our power pricing and supply calamity, reminds STT of the apocryphal frog left to swim in a pot of cool water, being slowly brought to the boil.

Drop a frog into boiling water, and, instinctively, it jumps to safety. But, when the temperature rises steadily around it, the unwitting amphibian fails to notice the brewing peril and perishes.

True it is, that the mainstream media have failed the public abysmally, which offers some explanation for entrenched ignorance.

Australia’s media continually put forward all manner of theories as to why Australians are now paying the highest power prices in the world, but steadfastly refuse to attack the renewables rort.

Barely a handful of journalists have even a basic understanding of how Australia’s Large-Scale RET operates, and fewer still can provide a decent explanation as to its direct cost to power consumers (REC subsidies worth more than $3 billion a year and which will top more than $60 billion over the life of the scheme).

And you can count on one hand the number that understand how subsidies to wind and solar (worth $85-93 per MWh) have made it impossible for conventional generators to dispatch power to the grid; according to their well-established business model (once based on known daily customer demands, rather than whether the sun is up or the wind is blowing).

Add to a gormless and gullible press pack, politicians of every persuasion, most of whom also struggle to understand the basics of the policies for which they are directly responsible; or which they blindly support, thereby acquiescing in the greatest government mandated wealth transfer in Commonwealth history.

If an external force were looking to destroy Australia’s wealth and prosperity in double quick time, massive and endless subsidies to intermittent and chaotic wind and solar power would be the weapon of choice.

With the temperature rising fast around them, the only question is: can Australian power consumers jump in time?