Reserve Bank of Australia (RBA) governor Glenn Stevens says the introduction of a carbon trading scheme is likely to have a one-off effect on inflation, just like the introduction of the goods and services tax (GST) in 2000.
"At this point we would regard this as a one-time thing like the GST was,'' Mr Stevens told the House of Representatives Economics Committee hearing today in Melbourne.
"Most likely the incremental effects after the initial one will be small.
"If they're quite small they won't present problems.
"You might end up with quite a high price of carbon but if it takes 50 years to get there it won't be a problem.''
Mr Stevens said public understanding of carbon pricing would affect inflationary expectations.
"I think it really hinges on people's understanding that, in so far as, if you take just the pure ability of me or you as a consumer to have command over energy as a price, if the price rises our ability to command those resources diminishes,'' he said.
"I accept that has to occur, I can accept my living standards as defined by my ability to purchase carbon goes down.
"If we have a situation where people understand what's happening we get through this without problem inflation.
"What I said was, if people accept a rise in the price level which implies a decline in living standards ... then you don't have a spiral and we're okay.
"I wasn't suggesting business absorb the costs necessary ... the consumer ultimately bears costs in the economy.''
AAP
