Price-setting is the missing piece in Australia’s high inflation and cost-of-living story, an inquiry has heard.
Former Australian Competition and Consumer Commission chair Allan Fels kicked off a union-commissioned review into price-gouging on Thursday by stressing the importance of hearing from multiple voices, including consumers.
The inquiry heard from health-care professional Danielle Jaeger, who’s trying to squeeze an extra $8700 a year from a wage that’s gone up by just $102 a year.
“I can usually deal with the increase of one thing – whether it be a gas bill, the electricity bill, insurance, or the cost of food – but there’s been significant increases across the whole board,” Ms Jaeger said.
She’s making tough decisions to stay within budget, such as choosing not to visit her psychologist or to pay for treatment for her dog.
“If this is not price-gouging, what is it?” Ms Jaeger said.
The inquiry was set up by the ACTU amid concerns that excessive corporate profits, driven by higher prices, were doing more to fuel soaring inflation than rising wages.
“I believe that price-setting is a missing piece in the Australian story of inflation and cost-of-living impact on consumers,” Professor Fels said in his opening statement at the inquiry in Sydney.
Inflation began to soar last year, triggering a series of interest rate rises by the central bank that fanned higher borrowing costs and cost of living pressures, putting Australian households under financial stress.
The role of corporate profits in the inflation outbreak has been debated, with Treasury and Reserve Bank analysis suggesting profits were not significantly driving up prices, with the exception of the mining sector.
Prof Fels said there was a lot of resistance to any suggestion that price-setting was driving inflation, which contrasted to the previous eras of growing prices, where excessive wage increases were deemed responsible with “no hesitation”.
He said it was time to dig into the matter, especially since the profit share of national income and profit margins had gone up domestically and around the world.
The Australia Institute’s Centre for Future Work released new research ahead of the hearing showing that salaries have not kept up with inflation as companies mark up prices and record sky-high revenues.
The evidence “couldn’t be any clearer”, centre director Jim Stanford said.
Though Australian corporate profits also fell in recent months, thanks in part to the slower pace of inflation, earthey remain well above historic norms and have driven the majority of inflation since the COVID-19 pandemic.
The consumer price index peaked at almost eight per cent in the fourth quarter of 2022 and is currently around six per cent. In 2019, it was around two per cent.
Dr Stanford told the hearing there were three stages to the latest outbreak of profit-led inflation.
In phase one, key industries such as energy and logistics took advantage of supply-chain disruptions after the pandemic to push prices higher than their costs.
In the later phases, other industries bought those inflated products and were in some cases able to more than pass on those higher costs and lift their profit margins.
Dr Stanford said there were several reasons some firms were able to do this, including a lack of competition and consumer confusion.
McKell Institute executive director Rebecca Thistleton told the inquiry that price-gouging was poorly regulated in Australia.
The head of the progressive policy think-tank said successive coalition governments had eroded the consumer watchdog’s remit on price-gouging.