Turns out inflation and the cost of living in Australia aren’t actually affected by wage increases — despite what some business owners and CEOs would like you to believe — but in fact soaring corporate profits is the dominant factor, according to a new report.
The Australia Institute released a report on Monday titled Are Wages or Profits Driving Australia’s Inflation? and found that the answer was a big fat “no”.
It analysed national accounts data and found wages had “no contribution” to inflation in the 2019-20 and 2020-21 financial years, when the inflation rate was about 1 per cent in each year. During the 2021-22 financial year inflation increased to 5.1 per cent. Wages were responsible for just 0.6 percentage points of the 4.1 percentage point increase.
But when it looked at what had contributed the most to rising inflation in the last financial year, rising corporate profits came out on top. It contributed 60 per cent the total inflation increase, or 2.5 out of 4.1 percentage points!!!
The report noted inflation has risen while wage growth was at record low levels but the profit share was at a near-record highs.
“Wages have played a trivial role in driving inflation in Australia in the last three years,” the report said.
“Higher profits have played the dominant role over that same period.”
It also found the “continuing impact” of COVID-19 and the hectic global energy and fuel prices associated with Russia’s invasion of the Ukraine had had an effect on the cost of living in Australia, but not quite as significant.
So I’m handballing a STFU challange to all the industry groups and bodies who said the economy would collapse if we gave Australia’s most vulnerabe people a $1 an hour pay rise.
No, Innes Willox, CEO of Australian Industry Group, wage growth is not causing an “inflation and interest rates death spiral”.
Treasurer Jim Chalmers called out this commentary about rising wages as garbage after the Federal Government recommended a 5.1 per cent minimum wage increase, but let’s not forget this was also right before all politicians got a massive pay rise themselves so it was in their best interests to make this point.
The report also said such anti-worker commentary was flat-out false.
“While company spokespeople such as Gerry Harvey often suggest that they have ‘no choice’ but to increase prices when other costs rise, this is clearly not the case,” it said.
“Increasing prices in line with, or in excess of, rising costs is a choice to maintain or increase profit margins in Australia even though the profit share of GDP is at a near-record high.”
Next time your boomer uncle tries to tell you raising minimum wage is bad for the economy, hit him with this report.
