Inflation

A subscriber sent WBT the graph below with the following comment:

“For those of you following the criticisms of the the Reserve Bank (and its corporate capitalists board) over its targetting of wages as the cause of current high inflation.. Have a look at what the OECD latest report shows  for the contribution of profits and wages to the 2022-23 inflation surge! Clearly for Australia, over the last year profits have been 3 or four times more significant than wages! Maybe Philip Lowe (Governor of the Reserve Bank) missed this graph!’

For what it is worth, here is my response.

There is a debate afoot both inside and outside the Reserve Bank of Australia (RBA) about the role of corporate profits in producing inflation both here and overseas. The Australia Institute and the Australian Broadcasting Commission have weighed into this debate. See

Of course, the RBA is aware of this debate and claims that “Firm-level net profit margins have not substantially widened outside of the mining sector.” Essentially China is paying Australia a lot of money for its iron ore. This has made Twiggy Forrest, Gina Rinehart, Clive Palmer et al very rich.

Apart from mining the other sector that has increased profits is real estate. This has made Harry Triguboff Australia’s second richest person after Gina Rinehart. Triguboff’s trademark are those 90 storey buildings in capital cities. In Brisbane fly-in-fly-out miners stay there on their leave. There are only 3,500 of these kinds of jobs throughout Australia, so, though highly paid, they don’t represent much of an impact on inflation. Meanwhile 750,000 workers are paid below minimum because of restrictive visas in Australia. There are a 100,000 workers employed daily in Australia despite having no legal residency status in this country. [See ‘Hard labour – wage theft in the age of inequality‘ by Ben Schneiders]. The wages system is both unfair and moribund. Unions have proven unable to keep wages on a par with profits. With historically low union participation rates this will not change in the immediate future.

Historically high profits in real estate have made housing out affordable to the poor the disabled and the lowly paid. There has been a gradual shift of wealth away from workers since the 1970s. Corporation have reaped the benefit of high profits and low taxes.

Another inflationary factor is fuel prices have increased because of the war in Ukraine. Russia is selling its fuel cheaply to India which is undergoing a big growth surge, and China’s economy continues to outstrip the West where growth has stagnated.

Neither the LNP nor the Labor Party in government are prepared to challenge the status quo being maintained by the RBA which is paranoid about stagflation that we had in the 1970s. Stagflation is a period of stagnant economic growth accompanied by persistently high inflation and a sharp rise in unemployment.

There is even a Keynesian solution. Government needs to introduce a super profits tax for mining corporations, they need to stop discounting the capital gains tax, take away negative gearing, cap rents and build public housing. Neither political party will do that, so this crisis will continue.

Ian Curr
23 June 2023

Reference

OECD report shows corporate profits contributed far more to inflation in Australia than wages