Corporates cost local wallets
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Analysis shows corporate profit-taking is driving inflation and squeezing household budgets.
Since 2021, consumer prices have surged, with companies reaping an extra $100 billion in profits.
Research from the Australia Institute attributes more than half of the inflation above the Reserve Bank of Australia's (RBA) 2 to 3 per cent target to rising corporate profits, suggesting they play a central role in the cost-of-living crisis.
The COVID-19 pandemic and global events like Russia’s invasion of Ukraine saw businesses raise prices to offset higher costs. However, some companies increased prices beyond cost recovery, yielding profit margins well above pre-pandemic levels.
Coles and Woolworths, for instance, show significantly higher profit margins now than in 2020, highlighting the trend in Australia’s consumer sectors.
Australia's market structure - dominated by a handful of major players in sectors like supermarkets, airlines, and banks - exacerbates inflation too.
Limited competition discourages price reductions as companies compete primarily through advertising, loyalty programs, and strategic locations.
Former Australian Competition and Consumer Commission (ACCC) chair Professor Allan Fels says this market concentration is enabling “exploitative pricing practices”.
He has called on the federal government to establish a Prices Commission to oversee high prices in non-competitive industries.
In response to rising inflation, the RBA has raised interest rates 13 times since 2022, marking the highest increase in three decades.
This strategy aims to curb inflation by reducing consumer demand through higher mortgage and rental costs, theoretically leaving households with less to spend.
However, critics argue this approach is ineffective against inflation driven by corporate profits and international factors rather than consumer demand.
Increasing rates in this context risks pushing the economy into recession while further burdening households with rising housing costs.
Advocates for economic reform, including the Australia Institute, suggest that policies directly addressing corporate profits could relieve consumers more effectively than rate hikes.
Suggested measures include reforms to break up monopolistic firms, establish temporary price controls in essential sectors like energy and rent, introduce super-profit taxes on highly concentrated industries, and support household electrification to reduce dependency on costly gas.
These proposals reflect mounting demands for policies targeting corporate profits, which critics argue are central to the current inflation surge.
The link between profits and inflation in Australia has also been replicated in research by the Organisation for Economic Cooperation and Development (OECD), headed by former Liberal Finance Minister Mathias Cormann.
