Company profits, not wages, have driven the soaring inflation in Australia, an analysis from the Australia Institute has found.
The thinktank has released evidence of what it calls a “profit price spiral”, arguing big business earnings account for 69% of the inflation that is above the reserve bank’s target range of 2-3%.
The Reserve Bank of Australia and its governor, Philip Lowe, have been warning of a “wage-price spiral”, when price rises cause wages to increase which in turn causes further price rises, which was an issue of the 1970s stagflation period.
However Jim Stanford, from the Australia Institute’s Centre for Future Work, has examined post-pandemic price rises and company profits and compared them to wage increases.
Australia is in the midst of a supply side inflation shock, with price increases being driven by breaks in supply chains because of the pandemic and natural disasters, as well as energy supply disruption due to Russia’s invasion of Ukraine. But companies have posted profits over and above those increases.
At a parliamentary hearing on Friday, Lowe admitted the central bank’s models that guide its responses were “not well suited for supply shocks”.
Increases in labour costs account for just 18% of the inflation above what the RBA wants to see before it eases interest rate increases. The most recent GDP data shows Australian businesses increased prices by a total of $160bn a year above taxes, labour and other costs.
