Rise in profits behind inflation: report

Rising profit levels in Australia’s corporate sector have been identified as one of the main causes of rising inflation levels across the country, according to a new report.

Research from the Australia Institute found that rising corporate profit levels, not rising workers’ wages, contributed to rising inflation rates.

It comes as Treasurer Jim Chalmers warned that families are set to endure tough economic times over the next two months as inflation continues to rise, adding to the rising cost of living.

The report found wages did not contribute to inflation in Australia in the 2019/20 or 2020/21 financial years.

The most recent fiscal year saw wages down just 0.6 percentage points from 4.1%.

Currently, inflation is at 5.1%, the highest level in 20 years, and the rate is expected to climb to 7%.

Australia Institute chief economist Richard Denniss said that despite concerns from employers and business groups that rising wages would contribute to rising costs, data showed that rising profits was a major inflationary factor.

“The national accounts show that rising profits, not rising costs, are driving inflation in Australia,” he said.

“While workers are being asked to make sacrifices in the name of controlling inflation, the data clearly shows that it is the business sector that has to tighten its belt.

“It’s a shortage of competition, not a shortage of skilled labor that is driving up the cost of living in Australia.”

The report said rising corporate profits were the dominant factor amid rising inflation levels.

“Rising prices in line with or beyond rising costs is a choice to maintain or increase profit margins in Australia, even if the profit share of GDP is at near record lows,” the report says. report.

“It is clear that competition policy and other policies designed to control prices have an important role to play in Australia.”

The federal treasurer said rising inflation levels will put more pressure on households as it will likely lead to higher interest rates.

“It’s obvious that inflation of the kind we’re seeing right now will lead to interest rate hikes from the Independent Reserve Bank,” Dr Chalmers said.

“This will clearly slow the economy or slow our near-term economic growth expectations as interest rates rise in the manner indicated by the Reserve Bank Governor.”

The latest inflation figures are due out later this month when the Australian Bureau of Statistics releases the consumer price index for the June quarter.

Comments are closed.