Paul McIntyre: Rising costs start to rattle public mood

It's been all biffo in politics and business this week after the Reserve Bank lifted interest rates 25 points to 6 per cent and rising petrol prices started to rattle industry and consumer sentiment.

Treasurer Peter Costello warned on Thursday that the Australian economy and jobs were at risk from what he termed the "third oil shock" in 30 years. New figures out this week show large-car sales are down 22.5 per cent.

There's no word from Holden and Toyota yet but the two carmakers must be nervous as they prepare to launch the new six-cylinder Commodore and Camry models. Holden has already come under fire because its new VE Commodore is more powerful than its predecessor.

Conversely, small-car sales are booming with models such as the Toyota Yaris and Holden Barina collectively up 32.3 per cent this year.

After this week's interest rate rise, the Howard Government has come under the most pressure in its reign since 1996 on interest rates. Although they're nowhere near the 17 per cent peak under Labor's rule, families are paying more to service debt today than in the late 1980s.

In 1989, repayments on mortgages accounted for 25.8 per cent of average household disposable income. Today it's 28.2 per cent, chiefly because the average new-home loan has skyrocketed from A$66,700 to A$222,200.

Households will have to fork out an additional A$35 a month to service that and an extra A$57 a month in fuel costs compared with 12 months ago.

All the new statistics have forced Prime Minister Howard and Costello into defending their economic credentials. The federal Government's A$9 billion tax-cut package in July has already been eroded by two-thirds after petrol price rises and the latest hike in interest rates.

Talk of a recession even started to surface in some circles this week, a point Howard hosed down quickly.

But it's a volatile time for the Government. The latest Morgan Poll, conducted in the lead-up to Wednesday's interest-rate rise, showed Labor leading the coalition 53.5 per cent to 46.5 per cent on a two-party preferred basis.

Consequently Costello was hard at it this week trying to prepare Australians for further economic difficulties while shoring up the Government's record on economic management.

"We have got to make sure this oil shock can be contained as much as possible so that the economy can continue to grow and people can keep their jobs," he said. "The last oil shock didn't end well and I'm determined to make sure we do everything we can to protect the Australian public in terms of the overall economic management."

The oil talk this week came as a Senate inquiry started into the ability of the Australian Competition and Consumer Commission to police the oil industry.

Labor, Democrat and National MPs all took umbrage at the ACCC's not having the power to investigate and prosecute price fixing in the sector.

Labor competition spokesman Joel Fitzgibbon said the ACCC was hampered by a change in 1998 restricting its ability to formally investigate anti-competitive behaviour among fuel operators.

Democrats senator Andrew Murray also had a few choice words.

"There is widespread public belief that there is the possibility of cartel behaviour because of what is happening with fuel prices, but you don't have the ability to get behind the corporate veil," he told ACCC chairman Graeme Samuel at the inquiry.

But Samuel defended the commission's powers, saying they were adequate. There was no evidence of price collusion or any other illegal behaviour in the industry, he said.

That's despite the news that the ACCC just hit a major setback in one of its cases alleging cartel behaviour among petrol retailers in Victoria - the High Court rejected an ACCC appeal against a Federal Court judgment overturning penalties against Ballarat firms.

Oil does tend to make things slippery.