Howard and Rudd fight over who best understands why you’re broke.

Here is a worthless, truly worthless statistic:

Mr Costello said bureau figures showed that under Labor food prices rose 5.2 per cent a year compared with 2.4 per cent under the Coalition.

Yet it becomes part of the narrative of the election campaign nevertheless. Australian households are wonder where their money is going, as going it must certainly be, on

  • Mortgage payments (or rent)
  • Keeping the car running
  • Credit card payments
  • Food and other groceries (partly due to petrol prices, partly due to the freaky weather)
  • Fortunately not energy bills, unlike other countries

At the moment food prices are escalating noticably – above the rate of inflation, we are told (and it is true, but…). Now the Consumer Price Index is a funny thing: we hear that the CPI is, say, 2.5%, and get angry when figs are suddenly 50% more expensive. It just doesn’t work that way. For a start, “food” is only a component of the CPI. From the Australian Bureau of Statistics’ March figures, for example:

ABS CPI March 2007

Food was already 4.6% for the year. Moreover, CPI figures are quarterly. If you are told that the CPI is 2.5% and your grocery bill is going up 10%, that’s fine – the CPI for the next quarter will measure that. But when the Prime Minster says something like,

The Prime Minister, John Howard, said the best way to keep prices down was to keep inflation low.

He assumes you have no brains at all (as, for that matter, so the Sydney Morning Herald, which feels obliged to remind its readers who the Prime Minister is…). The Prime Minister’s ability to “keep inflation low” is very, very minimal, really. The Reserve Bank can use interest rates (as we’ve been discussing) to keep borrowing, investment and consumption constrained, and the government itself can use its budget to cut our incomes (on aggregate). How much effect will these have on increasing petrol prices and/or bizarro-weather jacking-up the cost of fresh-and packaged-foods at our supermarkets? None.

Nor, for that matter, will Kevin Rudd’s plan to pay closer inspection to supermarket pricing. If he wanted to push a policy of watching supermarkets closely, he ought to focus on the downward pressure on prices paid to farmers, not prices charged to consumers. That is where “Big Supermarket” extracts the greatest economic rents.

The difference is that Labor is admitting the plan may have no effect on prices. John Howard is pretending he has an inflation gauge button in his office, that only he knows how to use. Somebody ought to ask him why he hasn’t been using it already, if it’s all so easy…

In fact, there are two halves to the idea of examining supermarket pricing:

Mr Rudd said greater transparency was needed on food pricing. “How much of this is seasonal, how much is being affected by the drought, how much is being affected by normal market conditions?” he asked. “But also whether there are any problems in terms of competition within the marketplace and whether … we’ve got any non-competitive or anti-competitive conduct.”

We’re discussing the latter, which is becoming the election issue, rather than the former, which would give consumers much better information about how prices are determined for food of various types, under various seasonal and macroeconomic conditions. Which would be a very, very good thing.

Meanwhile, Kevin Rudd has at least succeeded in delineating a few more ‘sides’ to take for the election.

Woolworths’ head, Michael Luscombe, said his company was confident it would stand up to scrutiny.

The Australian National Retailers Association also welcomed the increased scrutiny as an opportunity for the chains to clear their names.

“There is a real need to address the many inaccurate and misleading claims that have been made,” its chief executive officer, Margy Osmond, said.

The Australian Consumers Association backed Mr Rudd. “While the majors can argue about market share figures, the reality is we shop in a virtual duopoly and it is doing us no favours at the checkout,” its spokeswoman, Ria Voorhaar, said.

The NSW Farmers Association said Mr Rudd’s plan would help explain why farmers were not benefiting from price increases but were often blamed.


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