The Organization for Economic Cooperation and Development (OECD) is the latest leading economic body to publish research showing the important role played by historically high corporate profits in explaining the surge in inflation after the COVID pandemic.

Its new findings are consistent with both the methodology and the conclusions published by the Australia Institute and its Centre for Future Work in recent months.

Dr Jim Stanford, Director of the Australia Institute’s Centre for Future Work, and Policy Director Greg Jericho are available for comment about the OECD report, and the role of corporate profits in driving inflation.

“This new OECD research is fully consistent with our earlier research on profit-price inflation, in terms of both its methodology and its conclusions,” said Dr Jim Stanford.

“Companies in Australia and many other industrial countries have taken advantage of the disruptions, shortages, and desperation of the pandemic to push up profit margins far beyond normal levels. In Australia, corporate profits reached their highest share of GDP ever in 2022, and that has been the leading cause of the current cost-of-living crisis

“Workers are now struggling to catch up to prices and recover the loss in their real wages. However, the RBA continues to ignore the role of profits in driving prices, while doubling down on its determination to suppress wage growth,” Dr Stanford said.

Further findings from the OECD Economic Outlook 

• Published yesterday, the OECD provided a detailed disaggregation of inflation into the factor incomes received by different stakeholders in the economy (including corporations, workers, and indirect taxes). The methodology uses the same categories and measures (including decomposing the GDP deflator, a measure of economy-wide inflation) as earlier Australia Institute research.
• The OECD analysis covered 8 countries and the Euro zone. It showed that the contribution of unit labour costs to overall inflation was much smaller than in the 1970s, and that higher unit profits have been the leading component of recent inflation in several of those countries (including Australia, Canada, and the Euro zone).
• In Australia’s case, the OECD data suggests that over the latest 5 quarters (to end-2022), higher unit profits accounted for an average of 51% of the year-over-year increase in the GDP deflator, while higher unit labour costs only 21%. Labour’s share of total price rises has grown, reaching 37% by the last quarter of 2022 – but still smaller than the 48% added in that quarter by higher profits.­­­