New study: Corporate profits drive up inflation in Australia – not higher wages

A recent Australia Institute report has shown that profiteering is the source of the country’s high inflation. This is in contrast to the Reserve Bank of Australia’s fearmongering claims that higher wages are the main threat to economic growth and security. The report highlights the need to control excess profits and artificially increased prices in order to protect the purchasing power of workers, and argues that increased wages should not be feared.
We’ve all heard the argument before—if wages increase, prices must increase to cover those wages, and the end result will be inflation. This theory is referred to as the ‘wage-price spiral’. It is often wheeled out to shut down any demands for fair pay, and particularly for the raising of the minimum wage. Contradicting this argument, a study by the Australia Institute has found that inflation is more the result of a ‘profit-price spiral’, with 69% of the nation’s inflation being attributed to excess profits.
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Australia Institute calls wage-price spiral ‘economic fairy-tale’
For many people, the wage-price spiral argument provokes suspicion. Inflation is all around, but wages don’t seem to have risen in line and surely can’t be to blame for higher prices. In Australia, inflation reached a year-over-year rate of 7.8% by the end of 2022. This has resulted in a major hit to the real purchasing power of working Australians.
Australia faces a macroeconomic slowdown due to higher interest rates, which means job losses and even greater income losses in the coming months—all while the nation reports an unprecedented upsurge in business profitability. These profits are shown in the report to be the result of businesses increasing prices well beyond incremental expenses for their own purchases. The institute states that:
“new empirical evidence confirms the dominant role of business profits in driving higher prices in Australia – not wages.”
They argue that the focus of monetary policy by the Reserve Bank of Australia on wage restraint is misplaced and unfair, and that more attention should be given to the artificial inflation of prices by businesses. Dr Jim Stanford, the researcher behind the report, said:
“we’ve been told a story that workers need to restrict wage growth and accept a permanent reduction in living standards in order to fight inflation. This report shows that’s an economic fairytale.”
Report’s major findings suggest profit-price spiral
The Institute’s investigation found that as of September 2022, Australian businesses had increased prices by a total of $160 billion per year above their higher expenses for wages, taxes, and other inputs.
Had those excess profits for Australian-made goods and services not been engineered through increased prices, average annual inflation since 2019 would have been 2.7% per year, as opposed to the reality of 5.2%. This would have also meant that such harsh interest rate hikes would not be necessary, and Australians would have been spared the worst part of job losses and a cost of living crisis.
Despite this empirical evidence, the Reserve Bank of Australia, who conduct monetary policy within the nation, repeatedly refer to the dangers of a wage-price spiral and make almost no reference to the role of excess corporate profits in driving inflation. In their most recent statement from February 2023, the Reserve Bank mention wages 75 times and profits only once. This is despite the fact that corporations have increased their profits much faster than the nominal growth of Australia’s economy, and have benefited from the acceleration of inflation since the pandemic.
The report states that the focus by the Reserve Bank of Australia on suppressing wage growth in their anti-inflation policy and ignoring the role of record profits:
‘blames the victims of inflation, while ignoring its perpetrators, and will impose further needless harm in coming months through further real wage reductions, and quite likely an economic recession.’
Profits grow while inflation’s victims suffer
This story is far from limited to Australia and is being played out across the world. As workers struggle to cover skyrocketing costs, energy companies and big businesses post record-breaking profits. Workers not be taken for fools by their employers and governments, and should continue the fight for higher wages and a share of the profits which they generate, at the expense of greedy owners and investors. Läs mer…

Gas price brake, rent cap & tax-free food: Spain most successful in fighting inflation in the EU

Spain has the lowest inflation rate in the EU. What are the Spanish under Prime Minister Pedro Sánchez doing differently—and better? First and foremost, gas price caps and the rent brake are curbing prices. Next year, they will go one step further: VAT on basic foodstuffs will fall, making food cheaper in one fell swoop.
Left-ruled Spain now announced, at the end of December, the third major anti-inflation aid package this year to relieve the Spanish population from inflation. This package includes 10 billion euros, bringing the total amount that the government of Pedro Sánchez (of the socialist PSOE) has put in place since the beginning of the year to cushion inflation to 45 billion euros.
First, the aid package includes a one-time payment of 200 euros for about 4.2 million low-income households (up to about 27,000 euros) and an extension of tax cuts on energy bills for the first half of next year. In addition, all pensions are to be increased by 8.5 percent, and particularly low pensions by as much as 15 percent.
Success in Spain: lower electricity prices and the lowest inflation rate in the EU
There has already been direct aid, concessions on loans and price brakes: rents in the country may increase by a maximum of two percent per year. According to Sanchez, the aim is to ensure that aid reaches those who really need it.
In particular, the gas price brake, which Spain and Portugal were the first in Europe to introduce in May, proved to be an effective intervention to curb prices. Compared with November last year, electricity prices fell by over 22 percent. The gas price brake is in place for 12 months and ensures that gas costs a maximum of 50 euros per megawatt hour. By comparison, wholesale gas prices peaked at 1,000 euros per MWh in the summer.
Inflation over the past 12 months slowed to 6.7 percent in November. It is the lowest rate of the 27 EU member states.
Spain has the lowest inflation rate in the EU (photo: Eurostat)
Bread and milk tax-free: Sánchez government will reduce food prices
Currently, food prices are a thorn in the sight of the population, but also of the government. This is because they have risen by 15 percent compared with the fall of last year.
That’s why Spain’s government announced that it will reduce VAT next year on staple foods such as bread, cheese, milk, fruit and vegetables, and cereals from 4 percent to 0 percent. For pasta and cooking oils, the VAT will be cut in half to 5 percent, he said.
Sánchez also said he would extend subsidies for train commuters for another year and further limit rent increases.
However, the reduction in the price of gasoline for consumers:inside, except the transport industry, will be discontinued.
The result of the left-wing government’s policies: economic growth in Spain was more than 5 percent in 2022 and therefore even exceeded government forecasts. The country will be able to avoid a recession next year.
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