Everyday Australians are struggling to keep up with the rising cost of living, with soaring inflation savaging budgets and savings.
Meanwhile, companies are posting huge and sometimes record profits.
The Australian Council of Trade Unions (ACTU) has accused the Reserve Bank and big businesses of “pushing workers and the economy closer to a cliff edge”.
This week the ACTU called on big businesses to “stop their profiteering”.
Inflation and stagnant wages are clearly having an impact on Australians, economist and policy director at the Centre for Future Work, Greg Jericho told The New Daily.
“We’re certainly seeing for Australians, especially workers, that their household incomes are falling in real terms … interest rate rises are starting to be felt not just by households, but by the entire economy.”
Australians’ savings are taking a hit, with the latest national figures showing the savings rate falling to 4.5 per cent of income, from a pandemic high of 23.6 per cent.
The savings rate refers to the percentage of income that is saved rather than spent and is important because it reflects how prepared people are for the future.
The latest stats also show that economic growth is weakening.
The economy grew by 0.5 per cent in the December 2022 quarter, down from 0.7 per cent in the September quarter, significantly below some economists’ expectations.
Unemployment is also worsening, rising to 3.7 per cent in January, up from 3.5 per cent in December.
Big business profits
This all comes as major corporations report massive profits.
Recent research conducted by the Australia Institute asserts that the main driver for inflation is excess corporate profits, not wages.
The institute accused corporates of “squeezing consumers through the pandemic via excess price hikes”.
“The pain experienced by workers through current inflation contrasts sharply with unprecedented increases in business profitability at the same time,” Dr Jim Stanford from the Australia Institute’s Centre for Future Work said.
The institute’s Profit-Price Spiral: The Truth Behind Australia’s Inflation report was published in the same week supermarket giants Woolworths and Coles posted huge profits, with banks, gas and petrol companies posting similarly soaring returns.
In separate research published alongside the report, the institute found:
- Qantas posted a $1.4 billion half-year profit, tripling revenues
- Woolworths posted a 25 per cent rise in profits. Supermarket profits have soared on the strength of rapid food price inflation
- Coles net profit grew 11 per cent in the latest half-year result, beating forecasts
- Santos posted a 221 per cent annual profit
- Ampol, Australia’s largest oil refiner, reported a 30 per cent increase in first-half net profit, buoyed by soaring petrol prices
- Commonwealth Bank posted a record $5.1 billion profit, up 9 per cent, buoyed by extra income from rising interest rates.
Economist and policy director at the Centre for Future Work, Greg Jericho, told TND that companies like Qantas, Woolworths, Coles and Commonwealth Bank operate in industries with strong market power, meaning that consumers may not have viable alternatives if prices are raised significantly.
“When you have essentially oligopoly markets, that really raises the ability for companies to take advantage of an inflationary environment to make strong profits,” Mr Jericho said.
ACTU demands
“The economy is slowing, unemployment is worsening and inflation is starting to ease. Today’s figures show it’s past time for the RBA to stop interest rate rises and for big business to stop price gouging,” ACTU secretary Sally McManus said.
“Between the RBA and big companies, the average Australian has had their modest savings bled dry because of interest rate rises and big business keeping prices far higher than they need to,” she said.
“Essentially, we’re seeing a transfer of wealth from working people to the big banks and supermarkets. It’s a greed-price spiral.”
The Australia Institute backs the ACTU’s demands.
“We’ve been calling for a while now for the Reserve Bank to cease the interest rate rises, or at the very least, take a pause,” Mr Jericho told TND.
“There really is no rush, they’ve already gone fast. There is absolutely nothing to be lost by having a break and waiting to see if inflation continues to fall, if the economy is slowing more than they expected it too. In fact, I think it is the prudent way to go about things.”
Counter narrative
Macquarie Business School professor of economics David Orsmond offers a different perspective.
He says there is more demand for goods and services than the economy can supply, resulting in prices going up. This leads to higher profits for companies selling those items.
He says the reason companies can charge higher prices is that consumers are willing to pay more for the goods they want in an environment of excess demand.
“Until we get out of that situation, we’re simply not going to see a stabilisation in price. Only then will firms find that they’re not able to sustain ever-increasing price increases, because they simply won’t get the demand. But we’re not at that point yet.”
Fronting up to Senate estimates a few weeks ago, RBA governor Philip Lowe acknowledged the toll rate rises were having on Australians.
“It’s really tough, I understand that. I hear those stories [of personal hardship] with a very heavy heart,” he said.
But, he added: “Many have forgotten the really serious damage [untrammelled inflation] does to people, livelihoods and the functioning of the economy if it persists. It leads to higher interest rates and more unemployment.
“People are free to express their opinion, [but] it is the job of the central bank to control inflation.”
