KEY POINTS:
When your mortgage rate goes up blame the global credit crunch and its effect on banks' funding costs, if you like, but not the Government's planned emissions trading scheme (ETS).
The Reserve Bank has for the first time included the impact of the scheme in its inflation forecasts.
It expects it to raise the consumers' price index by a cumulative 0.7 per cent over the next two years as it hits petrol from the start of next year and electricity a year later.
Without the impact of the ETS inflation would be back close to 2 per cent by 2010, the bank said, rather than still in the top quartile of its 1 to 3 per cent target band.
In concrete terms, however, it is only talking about a 7c a litre increase in petrol prices and a 7 per cent increase in residential power bills. That assumes a carbon price of $25 a tonne.
To put that in context, power prices have been rising at that sort of rate for years as the industry adjusts to changes such as the end of cheap natural gas from the Maui field. Last year electricity prices rose 6.5 per cent.
And the increase in international oil prices over the past few years has had far worse effects. Last year it raised prices at the pump by 24c a litre.
Moreover the bank has made it clear that it will not react to the "first round" effects, that is the immediate hit to consumer prices.
It will, however, be watching for signs of second round effects, where inflation expectations rise and firms raise their prices, or workers demand higher wages, to compensate for the increased cost.
So even though the future inflation rate would have been lower without the ETS, the outlook for the official cash rate would not have been much different, deputy governor Grant Spencer told MPs on the finance and expenditure committee.
