Q & A: Corporate profits and inflation

Q & A audience member Amy Brown cited the Australia Institute’s profits research when she asked the panel of politicians when they’re going to “act on behalf” of the constituents who elected them, instead of on behalf of corporations.

Research from the Australia Institute and our Centre for Future Work reveals the main driver for inflation in Australia is excess corporate profits, not wages, and that inflation would have stayed within the RBA target band if corporates had not squeezed consumers through the pandemic via excess price hikes.

The dramatic expansion of business profits has gone mostly ignored by the RBA and other macroeconomic policy-makers, who have focused instead on a supposed ‘wage-price’ spiral which does not exist. This suggests the focus of the RBA on wage restraint is misplaced and unfair, and that interest rates would be far lower today if companies had not gouged customers at the checkout.

Key Findings:

  • A Profit-Price spiral is the main driver of inflation in Australia, rather than a supposed “Wage-Price” spiral, which does not exist
  • Excess corporate profits account for 69% of additional inflation beyond the RBA’s target. Rising unit labour costs account for just 18% of that inflation
  • The RBAs 9 back-to-back interest rate rises would have been unlikely without excess profits and prices based on the RBA’s own policy framework

Related research

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