Economists have revealed that the high inflation rate in Australia is being largely driven by corporate profiteering. The rise in the Consumer Price Index (CPI) since the pandemic has seen prices for essentials like food, rent, and energy go through the roof. The inflation rate for the December quarter is at 7.8%. Analysis of the data by the Australia Institute show company profits, rather than wage rises, are responsible for the lion’s share of the increase in inflation. Economists from the think tank identify that earnings by corporations account for two thirds of the inflation above the Reserve Bank’s target of 2-3%. They have observed a profit price spiral taking ordinary Australians to the cleaners, financially speaking.
– Remeikis, 24th Feb 2023
“Corporation: An ingenious device for obtaining profit without individual responsibility.”
– Ambrose Bierce
RBA Governor Philip Lowe At The Wheel Of The Australian Economy
Philip Lowe, the governor of the Reserve Bank of Australia, has been instigating the fastest rise in interest rates ever seen in a bid to curb high inflation. Warnings of a wage-price-spiral have accompanied these interest rate rises on the cash rate. The Albanese government has been toeing the RBA line in its reluctance to inject money into the hands of struggling Australians in case it fuels inflation. This has created conditions where low wage growth has met steep increases in the cost of living leaving workers out of pocket by around 4.5%. Our buying power has diminished at the same time that big business is declaring record profits. According to economist Dr Jim Stanford:
“We’ve been told a story that workers need to restrict wage growth and accept a permanent reduction in living standards in order to fix inflation, ABS data shows that without excess price hikes through the pandemic, inflation would likely be within the RBA target band, and hence there would be no need for the nine extreme, back-to-back interest rate rises that are crushing households and mortgage holders, fuelling the cost of living crisis.”
– Amy Remeikis, The Guardian, 24th Feb 2023
“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”.
“A Profit-Price spiral is the main driver of inflation in Australia, rather than a supposed “Wage-Price” spiral, which does not exist.”
– Australia Institute, 24th Feb 2023
“Corporate greed, not wages, is behind inflation. It’s time for price controls.”
– Robert Reich
The Narrative Around Australia’s Inflation & Rising Interest Rates
The current high inflationary period was begun via supply side shocks from the global pandemic. Shipping costs dramatically increased and health policies designed to slow the spread of the virus imposed further increased expenses for businesses. Natural disasters in Australia have negatively affected some sectors like fresh food. The war in Ukraine exacerbated things through high energy prices impacting upon global markets. These things have largely been curtailed or absorbed by the markets for some time now and yet we see prices stubbornly high.
Record Company Profits Declared By Corporates
The profit results of corporations like Qantas, Woolworths, Coles, and CBA show that their margins have been well in excess of higher costs. Qantas declared a $1.4 billion half yearly profit and this after appalling service complaints and receiving billions of dollars in government hand-outs during the pandemic. The airline business is a tough game to be in and the Spirit of Australia is unrepentant in its attitude under CEO Alan Joyce. (Barret, 23rd Feb 2023) Airfares are high despite the massive company profit. It is hard not to think that corporations are gouging back earnings wherever they can in the current high inflationary market. Woolworth’s profits were up 25%. Coles were up 11%, and CBA 9%. The Commonwealth Bank (CBA) recorded a record half yearly profit of $5.1 billion. Ampol declares a 30.1% profit increase thanks to high petrol prices.
The Lowe Philosophy Running Our Economy
Philip Lowe, in interviews, has mentioned that businesses will always set prices as high as they can get away with. His understanding is that this is the natural state of affairs in the capitalist free market economy. Lowe is a banker and his milieu is the corporate world of high finance. He listens to these people and his view of the economy is predicated on his training, background, and professional experience. The Reserve Bank (RBA) has one main lever to pull in controlling the Australian economy and that is interest rates.
A statement by Philip Lowe:
“At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 3.35 per cent. It also increased the interest rate on Exchange Settlement balances by 25 basis points to 3.25 per cent.
Global inflation remains very high. It is, however, moderating in response to lower energy prices, the resolution of supply-chain problems and the tightening of monetary policy. It will be some time, though, before inflation is back to target rates. The outlook for the global economy remains subdued, with below average growth expected this year and next.
In Australia, CPI inflation over the year to the December quarter was 7.8 per cent, the highest since 1990. In underlying terms, inflation was 6.9 per cent, which was higher than expected. Global factors explain much of this high inflation, but strong domestic demand is adding to the inflationary pressures in a number of areas of the economy.”
– Philip Lowe, 7th Feb 2023
Understanding Economic Pressures
Rising interest rates impact most heavily upon those borrowing money, like those with home loans from banks for very large sums of money. This has a flow on effect to other parts of the economy via these imposts being passed on to renters, business owners, and investors more generally. The idea is to inhibit demand for goods and services within the economy by making credit more expensive and there being less spare cash for spending available. Quite often an economic recession follows on from sharp rises in interest rates over a sustained period. This means that the economy has 3 consecutive quarters of negative growth.
“Inflation makes the wealthiest people richer and the masses poorer.”
– James Cook
Traditional Economic Thinking
Economists always look back to garner their wisdom in dealing with economic fluctuations. The 1970s are infamous for the stubborn stagflation caused by steeply rising oil prices managed by the OPEC cartel. A wage-price-spiral was observed then and this has scarred economists globally since. The RBA sees inflation fighting as its number one core economic stratagem.
Indeed, they see it as their reason for existing. This is why Australia has had a 5% unemployment rate as its acceptable standard for the last 50 years. Despite this meaning that hundreds of thousands of working age Australians have been unable to find gainful employment over the course. If the RBA and the federal government had full employment as their prime benchmark in running the Australian economy, then life would have been very different for many of these unlucky Australians. The fear of high inflation caused by wage-price-spirals is at the heart of this sacrifice of unemployed working age Australians over the last five decades. These economic policies for the nation are set by bankers, economists, and politicians. Of course, economists do not always get it right, as seen by the Great Depression in the 1930s, the International Debt Crisis 1982, and the Global Economic Recession 2008 – to name just a few prominent examples. Economists set what we consider are the indicators for right and wrong within economies. Thus, you may have been one of the many millions who missed out on the gravy train when the times were apparently good. If you want someone to blame, blame it on the economists setting the rules of the game.
Pressure Mounting On Philip Lowe
The pressure now on Philip Lowe from the media and from many Australians is the greatest ever seen upon a governor of the RBA. It is of his own making to some degree, as he announced in March 2021 that interest rates would not be going up until 2024 in his professional view.
“Philip Lowe used a speech to a summit convened by the Australian Financial Review on Wednesday to signal that the official cash rate will remain at historic lows until “at least 2024” because there is no prospect of wages growth hitting more than 3% before that time.”
– Katherine Murphy, The Guardian, 10th March 2021
May 2022 saw interest rates begin their rapid rise and many home buyers and investors had borrowed large sums of money on the basis that they had until 2024 before rates would rise. A review of his and the RBA’s performance by the federal government was announced by the Treasurer, Jim Chalmers in July 2022.
“The Review is designed to ensure that Australia’s monetary policy arrangements and the operations of the Reserve Bank continue to support strong macroeconomic outcomes for Australia in a complex and continuously evolving landscape. The Review will report to the government in March 2023.”
– (RBA, July 2022)
Australian Society & Our Economic Expectations
It is important to remember, I think, that we are always evolving as a society and as a nation. The recent experience of Australians going through a global pandemic saw governments do their best to support their citizens through challenging times. Financial institutions, like banks and the ATO, were encouraged to soften their approach to those experiencing financial difficulties. Government agencies organised handouts wherever possible in many sectors. This saw the economic tools wielded by government in a far more caring mode than business as usual. The general public’s expectations have changed in response to this. The dog eat dog nature of capitalism does not pass muster quite so easily anymore in the eyes of the electorate. Governments know this and are attempting to manage things upon this new understanding. A review of the RBA settings is a good idea in light of the current zeitgeist. Whether we will see any real changes in light of this remains unknown. This is a realm run by bankers and corporate economics, so, I do not hold any great hope for any major shake out of existing values.
The Poorest Paying the Highest Price
What we are seeing now is the working poor paying the price for the RBA’s harsh pulling of the interest rate lever to rein in high inflation in Australia. Those at the bottom of the economic ladder, those least able to afford it, are squeezed hardest by the rising cost of living championed by corporations and banks raising their prices and rates of interest on credit. Banks have not passed on these higher interest rates to savings accounts within their ledgers, which hardly seems fair. This is the nature of the financial realm in Australia, which is supported by Philip Lowe as governor of the RBA.
“Australian businesses had increased prices by a total of $160 billion per year over and above their higher expenses for labour, taxes, and other inputs, and over and above new profits generated by growth in real economic output,” Dr Stanford wrote in the report. “Small business profits per unit of output were 22 per cent higher. Unit labour costs were less than 10 per cent higher. Unit costs of other factors (including government enterprise profits and dwelling-owner surplus) were just 3 per cent higher.”
– Michael Janda, ABC News, 24th Feb 2023
Companies raise prices so that they can make more money. The x9 interest rate rises since May 2022 deliver greater ROIs for banks on their loan books. We are talking about tens and tens of billions of dollars. The problem and the ‘so-called’ cure both mean more profits for these corporations. Governments and the RBA are listening to these institutions and their economists – they are not listening to ordinary Australians. Those at the bottom of the food chain do not have a voice loud enough to reach the ears of those who set the economic indicators.
Corporate Oligopolies Mean Higher Prices
We are “sadly fortunate” that we have an ABC to report these things, even if the outcome is fairly underwhelming. If we only had corporate media like Murdoch’s News Corp the reporting of stories that question corporate profiteering would be far more muted or non-existent. Australians and their media landscape, with the dominance of News Corp and Nine Fairfax in print and TV and radio, convey a lackadaisical appreciation for the importance of media diversity. It is hard not to deliver a judgement of societal stupidity underpinning these oligopolies. Monopolies and oligopolies in industries allow for corporations to raise prices because there is no competition in the market. Every time we see a merger or takeover , as we have seen in the banking sector leaving only the Big 4, consumers have less choice and lose their bargaining power. The dominant story of the 2000s, here and in America, has been one of big companies gobbling up smaller companies to produce bloated corporate giants. Coles and Woolworths control around 70% of the grocery and liquor market in Australia. Qantas has had long stretches of dominance in the aviation sector, both overseas and domestic on many routes.
Santos Reports a 221% Increase in Net Profits
The four gas companies have a stranglehold on the gas market in Australia. They are recording record runaway profits on the back of the war in Ukraine. Australians have apathetically watched their governments allow these oligopolies to form. Neoliberalism and the dominance of conservative governments, here and throughout the western world, has seen the market not perform as economists espouse but rather be manipulated to form these non-competitive behemoths, which screw the ordinary consumer. We have seen the disappearance of diversity within the business world to be left with the same shops in every Westfield shopping centre around the globe. Franchised and branded retail outlets owned by corporations with supply chains stretching from China to western cities around the world. This was one of the reasons why supply side shocks began the whole inflation juggernaut during the pandemic. If we continue to sit idly by while business after business is swallowed by larger corporate concerns then the current profit-price-spiral will only become more firmly entrenched in the modern economic landscape.
Robert Reich, an American economist and former Secretary of Labor in the Clinton administration, has been writing about what has been happening in the US for decades. Reich clearly joins the dots for readers and viewers around the economic dangers of oligopolies dominating our nations. Letting the market have its head has not delivered the economic miracle for the majority of consumers, rather it has made a small coterie of corporate operatives exceedingly rich at the expense of us. Australians would do well to remember that we slavishly follow American trends in business and many other aspects of modern life. The demise of anti-trust laws in America under Republican administrations has removed the economic guards to the takeover by oligopolies across the US.
ACCC a Toothless Tiger Failing To Protect Competition
In Australia, we have the Australian Competition & Consumer Commission (ACCC) supposedly performing these antitrust laws. The ACCC may be the biggest toothless tiger we have in a large streak of toothless tigers downunder. The failure of the ACCC was brought into sharp focus during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. If we had a properly functioning ACCC we wouldn’t have a media landscape bereft of competition and a banking sector denuded of any serious competition. The facts speak for themselves. In Australia, governments, public servants, and the corporations are too close. Political funding in Australia is a cesspit of hidden influence and lack of oversight. We have not had a federal ICAC for the life of the federation, so politicians and public servants have operated without serious oversight.
If High Inflation Is Denuding Your Finances
Experian Ph. 1300 783 684
Illion Ph. 1300 734 806
Equifax Ph. 138 332
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Credit makes the world go around in the modern age, according to most economists. Your ability to access credit is determined by a strict set of laws governing the kind of data allowed to appear on your credit file. These laws also govern the time frames that negative listings and determinations are allowed to remain on your file. If you do not know these things you are playing the game with one hand tied behind your back. Many people are doing exactly that and missing out on opportunities they could be enjoying because of it. A credit reporting lawyer, who specialises in this field, can, often, prove to be of immense value in navigating the legalese and spotting the important facts in your case. No Win No Fee could be the right words in your particular situation. It is always worth a preliminary investigation to see if your circumstances warrant further action. Credit repair is a term bandied about by all and sundry, mostly without foundation because these companies lack the qualifications and training to achieve the desired outcome. Dealing with an experienced credit repair lawyer in our firm can make the world of difference.
More Lowe Points
“Lowe clearly remembers a world when plump retail bank profits were considered (and routinely remarked upon) as a critical marker of Australia’s strong financial services sector rather than a signifier of unchecked corporate greed. He remembers a time when an earnest review by the productivity commission would lead an orderly national conversation about “growing the pie” for many weeks, rather than surface momentarily before being hacked to death within hours.
Lowe is from an era where the elites held all the microphones and communicated to one another on the opinion page of the Australian Financial Review; where the shibboleths of national economic life were proclaimed to communities who lacked the opportunity or the mass platforms to talk back.”
– Katherine Murphy, The Guardian, 15th Feb 2023
Philip Lowe Earns in Excess of a Million Dollars A Year
When an exceedingly well paid banker, like Philip Lowe, tells you that you will have to put up with not being able to feed your kids or heat or cool your home, while he ramps up interest rates – how does that make you feel? The fact that he might be on the completely wrong track, economically speaking, makes things even more infuriating for many. Philip Lowe is not going to do anything to stem the profit-price-spiral feeding high inflation in Australia. He will treat the economy with his chemotherapy like, interest rate hiking, broad spectrum approach. This will beat the economy into submission and many vulnerable folk at the bottom of the food chain will be collateral damage. The modern economy is not acting like the economy of the 1970s. The RBA economists seem to be out of ideas and unable to adjust to the changes that have occurred in the 2000s within economies globally. They are not alone, as Treasury must grapple with the same problem. The banking sector in Australia is an oligopoly. Competition is in short supply within the milieu of Philip Lowe and his corporate banking cronies. The current inflationary crisis is not Philip Lowe’s fault, he is merely presiding over it as governor of the RBA. The question is whether the right bunch of economists are guiding the ship through our current rough seas of profit-price-spiral inflation? A new broom might be called for to clear away the dead wood. Oligopolies are choking the competitive life out of the domestic Australian economy at the expense of ordinary Australians.
Australia Institute, Profit-Price Spiral: Excess Profits Fuelling Inflation & Interest Rates not Wages, 24th February 2023, Viewed 24th February 2023.
Janda Michael, Profits have driven inflation while wages lag behind, argue economists, ABC News, 23rd February 2023, Viewed 24th February 2023.
Lowe P, Statement by Philip Lowe, Governor: Monetary Policy Decision, RBA, 7th February 2023, Viewed 24th February 2023.
Marsh Stuart, Big banks react after RBA increases interest rates for the first time in more than 11 years, Nine News, 4th May 2022, Viewed 24th February 2023.
Reich Robert, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life, 2008.
Remeikis Amy, An economic fairytale: Australia’s inflation being driven by company profits and not wages, analysis finds, The Guardian, 24th February 2023, Viewed 24th February 2023.
Srinivas V, Major Financial Crisis: From Great Depression to Great Recession, chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/http://nationalarchives.nic.in/sites/default/files/new/Final_Major_Financial_Crisis-i_0.pdf