The spectacular surge in energy prices – coal, gas and oil – tells us two big things; one immediate and punishing, and the other more fundamental.
First, it means inflation is coming, ready or not. Indeed, it’s already here if somewhat muted for the moment by the lockdowns in NSW and Victoria that have thrown the entire country back into recession.
Energy – and so higher costs from higher energy prices – is embedded in the prices of every-thing. From making the ‘stuff’ in China, shipping it to Australia, trucking it around Australia, and then delivering it or selling it in shops that require lighting and heating and in coming months cooling.
Obviously, that’s not so evident when the shops in Sydney and especially shuttered shattered Melbourne aren’t open.
The September quarter CPI figure at the end of October will be very important, not so much for the figure itself, but the way it will set a base for what’s coming through the December quarter and into 2022. The number itself will reflect the reality of more than half the economy being closed for almost the entire three months.
Hopefully – very, hopefully for the 6.6m people literally locked into Chairman Dan’s Victoria – we are into the ‘opening up’ December quarter.
You cannot have the sort of spectacular energy price rises – which started in the opening months of 2021 but have really accelerated in the last couple of months – and not have them ‘paid-for’ in higher prices to consumers.
Further, it’s not just the price of pure energy that have been soaring, but importantly also the semi-linked price of met coal used in steel-making – basic to all construction.
Just exactly why prices have surged is complicated. While it does all ultimately “come back to China”, it’s not just about China and the games being played over what it imports - like banning Australian energy coal, the world’s best – but also energy distribution and use inside China.
It’s also about long-term underinvestment in finding and developing coal and oil. There’s been massive investment in gas, which had led to an over-supply and very low prices. But that had evaporated rapidly and prices soared as demand for gas exploded, in Europe and Asia.
As with most things, the US has been ahead of the rest of the world for much of 2021. Despite the utter incomprehension of the so-called experts, inflation in the US was already running at 6-8 per cent. And that’s heading into a winter when US fuel costs are going to leap even further.
Fed (dead) head Jerome Powell has gone from saying there’s no inflation, to it’s only around 3 per cent, to the higher rate is “transitory” and will be gone by Christmas, to, well, transitory now means into 2022.
All this points to the second big message: if people want energy – and there are about 8bn on the planet that do – the only real supply sources are fossil fuels (oil, gas, coal) and nuclear.
All the rest were, are and always will be hot air. Despite all the rhetoric, despite all the claims of spectacular advances in technology and even more spectacular amounts of money thrown away – sorry, ‘invested’ – in so-called renewables.
If you want the lights to come on when you press the switch, the heating and cooling, and the reliable, plentiful and cheap supply without which you cannot have people-employing industry, your supply has got to be founded on coal or nuclear and some variable gas.
If we ever arrive at the lunatic future of all-electric cars, it’s going to be very funny to see all those owners plugging them into power points that don’t have any power because the wind ain’t blowing and the sun ain’t shining and all the so-called big batteries are themselves flat.
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