Key Points
- Company profits are driving inflation more than wage rises, a report by The Australia Institute says.
- Currently, inflation is sitting at 5.1 per cent, the highest level in 20 years, with the rate expected to climb higher.
Rising profits levels in the Australian corporate sector, not wages, have been identified as one of the key causes of across the country, a new report has shown.
It comes as Treasurer Jim Chalmers warned families would have to as inflation continues to rise, adding to the rising cost of living.
The report from the Australia Institute found wages made no contribution to inflation in Australia during the 2019/20 or 2020/21 financial years and accounted for just 0.6 per cent of the 4.1 per cent increase in prices so far this year.
Currently, inflation is sitting at 5.1 per cent, the highest level in 20 years, with the rate expected to climb as high as 7 per cent.
Australia Institute chief economist Richard Denniss said despite concerns from employers and business groups increased wages would contribute to rising costs, data showed increasing profits from companies increasing prices were a major factor for inflation.
“Australia isn’t experiencing a wage-price spiral, it’s at the beginning of a price-profit spiral,” Mr Denniss said.
"The national accounts show it is rising profits, not rising costs that are driving Australia's inflation.
"While workers are being asked to make sacrifices in the name of controlling inflation, the data makes clear that it is the corporate sector that needs to tighten its belt.
“While companies are arguing that they have ‘no choice’ but to increase their prices, the fact that they are making record and rising profits is proof of how many choices they really have.
"It's a shortage of competition, not a shortage of skilled labour that is driving up the cost of living in Australia."
The report said companies did have a choice.
"Increasing prices in line with, or in excess of, rising costs is a choice to maintain or increase profit margins in Australia, even though the profit share of GDP is at a near-record high," the report said.
"It is clear that competition policy and other policies designed to control prices have a significant role to play in Australia."
The treasurer said the rising inflation levels will put more pressure on households as it would likely lead to higher interest rates.
"It's self-evident that inflation of the kind we're seeing now will bring interest rate rises from the independent Reserve Bank," Mr Chalmers said.
"That will clearly slow the economy or slow our expectations for economic growth in the near term, as interest rates rise in the manner that the governor of the Reserve Bank has indicated that they will."
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.
