Is the carbon tax inflationary?
One of the major criticisms levelled at the government’s plans to put a price on carbon is that it is inflationary – that it will raise prices by a large amount. Treasury modelling shows that the cost to an average household will be approximately $9.90 per week.
According to their calculations, the consumer price index (CPI) will increase by 0.7% in 2012-2013 due to the plans. To put that into perspective, the GST and related changes caused an increase to the CPI of almost 2.5%! Take a look at the chart below to get an idea of how minimal the impact will be on overall prices, and remember you are likely compensated for these price impacts and you stand to gain if you can cut your consumption of carbon-intensive products.