The Reserve Bank of Australia has finally acknowledged that corporate price hikes at least play a role in Australia’s inflation woes despite earlier this year demanding research by a respected think-tank which showed as much be withdrawn.
The minutes of the latest meeting of the RBA board, held earlier this month, acknowledged that price gouging by corporations created an “increased risk” that high inflation would remain. Yet earlier this year, the Reserve was highly critical of research from the Australia Institute which asserted that corporate price gouging, and the associated record profits generated by it, were a far more potent driver of Australia’s inflation crisis than modestly rising wages.
In its research, the Australia Institute questioned why the RBA had persistently cited wage growth as a concern, when increases were well beneath the rate of inflation, but had ignored price hikes and profits, when corporations were increasing prices well above the rate of inflation. The RBA was so critical, in fact, that the Reserve Bank, urged the Australia Institute to retract the report.
This month, the RBA minutes of the most recent board meeting acknowledge that corporate greed is a risk to inflation.
“… Some firms were indexing their prices, either implicitly or directly, to past inflation. These developments created an increased risk that high inflation would be persistent, which would make it more difficult to keep the economy on the narrow path,” the minutes read.
Greg Jericho, policy director at the Australia Institute’s Centre for Future Work, said he hoped the RBA might now be more inclined to “stop punishing everyday Australians and blaming their modest, below-inflation wage rises” for creating pressure on the economy.
“Companies are the ones that set prices, not workers,” Jericho said. “The Reserve Bank has finally acknowledged that companies are not merely responding to market forces or increased costs but are increasing prices because they can take advantage of the inflation crisis to increase their margins.
“This is consistent with the OECD’s recent research that found profits were driving inflation not just in Australia but across many advanced economies, as well as earlier Australia Institute research.
“Now, finally the Reserve Bank has itself acknowledged the role companies are playing in keeping inflation high even as the Reserve Bank acknowledges wage growth remains ‘consistent with the inflation target’,” said Dr Jericho.
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