Cigarette Tax Sparks Inflation Jump

Australia's monthly inflation rate has jumped, with prices rising at the fastest pace since October 2008, spurred in large part by the federal government's 25 percent tax slug on Camel, Marlboro, Kent and other smoking brands.

Prices increased by 3.7 per cent in the year to May, up from the 2.9 per cent annual pace in April, according to the TD Securities - Melbourne Institute Monthly Inflation gauge.

''While there is a spike in the headline measure due to the 25 per cent lift in the tobacco excise, excluding this outcome still sees headline inflation breaching the upper limit of the RBA's two to three per cent inflation target band,'' said TD Securities senior strategist Annette Beacher.

The inflation rate jump isn't likely to alter the Reserve Bank's interest rate settings. Turmoil in global financial markets this month, centred on Europe's sovereign debt crisis, has all but eliminated expectations of further rate rise by the central bank over the next year.

Investors were earlier today pricing in a modest chance of a cut - judging it to be a one-in-20 prospect - in official interest rates when the RBA board tomorrow. TD's Ms Beacher, though, said the latest inflation data effectively eliminates any rate cuts in the near term.

''The markets are clearly overshooting by pricing in a material risk of a rate cut in the coming months,'' said Ms Beacher. ''With a fully-employed economy and price pressures clearly building up a head of steam, a rate cut is the last thing this economy needs.''

The central bank has lifted rates six times in eight months - including at the start of this month - to slow the growth in the economy and contain prices pressures expected to be driven by the re-ignited commodities boom. Recent economic data, though, has revealed the fragile confidence of consumers and wavering corporate appetite for investment.

Inflation returns

Stripping out the impact of tobacco tax, the gauge rose by just 0.1 per cent or 3.3 per cent in the twelve months to May, TD Securities said. The government announced the new 25 per cent tax on a pack of cigarettes in April 30, to raise an estimated $5 billion over four years, earmarked for spending on healthcare.

''Whether or not one nets out the effects of taxes on tobacco, the data this month reaffirms the observation made last month that inflation is back,'' said La Trobe University economics professor Don Harding.

''In the short run, international considerations will most probably preclude further tightening of monetary policy but it is hard to escape the conclusion that more will need to be done as soon as the international situation clears,'' he said.

The monthly inflation gauge rose 0.5 per cent in May - mostly because of the tobacco tax - from 0.4 per cent in April, the seventh straight month of increases.

Also contributing to May's increase were rises in the cost of fuel and financial services, while the price of fruit and vegetables, travel and recreation all fell. Rent prices rose 0.2 per cent in May, putting them above their level of a year ago, and marking the first annual gain in seven months.

The May TD Securities report suggests the official June quarter consumer price index may rise by 1.35 per cent, from 0.9 per cent in the March quarter. It also tips a 3.8 per cent rise in the year to June, up from a 2.9 per cent increase in the year to March.

8% Girls Under 15 Consume Tobacco

In India, 8.3% of girls in the 13-15 age groups consume some form of tobacco, according to the first Global Youth Tobacco Survey (GYTS) report. Experts say that the data is indicative of the trend of an increasing number of women using discount cigarettes like Winston, Marlboro, Kent etc.

In an attempt to accurately ascertain the use of tobacco products in the country, the Union health ministry along with WHO has conducted the first Global Adult Tobacco Survey (GATS).

"Regarding the use of tobacco in the country we just have National Family Health Survey (NFHS) data. This is the first survey in the country which will accurately tell us about the use of tobacco in different socio-economic strata," Dr Jagdish Kaur, chief medical officer of DGHS in the ministry of health, said.

Under the GATS project, 72,000 people were surveyed in 29 states. "With the help of WHO, we collected data. This time we used a special handheld device which was connected to out masterserver. So, all data collection was directly uploaded to the server. This helped us in expediting the data collection process," Dr Kaur said. The project was sanctioned by the ministry last year with an objective of identifying areas where tobacco use is high. "We had a set of 75 questions. Once the report is compiled, we will have a lot of information based on several parameters," Dr Kaur said.

As for tobacco use among women in India, experts say that there has definitely been a rise in the cases. Women comprise nearly 20% of the world's more than 1 billion smokers. "The global report on tobacco use is indicative of the increase in the use of tobacco among women in India. It is a percentage by which it has gone up," Vineet Gill, national programme officer of Tobacco Free Initiative, WHO India, said.

The vast majority of women who consume tobacco use smokeless tobacco (gutka, paan masala with tobacco, mishri, gul) and it varies considerably across states with prevalence rates ranging from 1% and 60%. The GATS report is likely to be released in June this year.