The Australian economy is facing a rising inflation rate, currently sitting just below 8%. While global factors such as the pandemic and the war in Ukraine have played a role in driving up prices, the Reserve Bank has acknowledged that strong domestic demand is also contributing to the inflationary pressures. However, there are indications that businesses are taking advantage of the situation and pushing up prices over and above their increased costs, leading to what economists call "price gouging".
The Australian Bureau of Statistics has reported that the record profits being made are concentrated in the mining and resources sectors, with energy companies and the mining sector being blamed as the worst culprits. NAB has conducted a survey of 700 firms, finding that while costs are starting to come down for companies, prices remain elevated. This suggests that fatter corporate profits are contributing to inflation, and there are concerns that prices will remain elevated, fueling corporate profits.
The Reserve Bank forecasts inflation to peak at 7.8% but acknowledges that it is just a forecast. In order to combat inflation, the Reserve Bank has stated that it will continue to raise interest rates until inflation falls into its target range of 2-3%. However, this approach may punish everyday consumers who are already struggling with the rapidly increasing cost of living and declining real wealth.
As demand-pull inflation is expected to slow, it is supply-side inflation that is contributing to the bulk of price growth throughout the economy. While the government has made policy changes to address energy prices, the chief executive of AGL has stated that energy prices remain elevated and will continue to do so, reflected in earnings growth in 2024.
In conclusion, it appears that businesses, big and small, are further fueling inflation, not consumers. The rise in prices is affecting families on tight budgets, and the Reserve Bank's approach of raising interest rates may only compound the problem. The fundamental economic problem faced by the nation is the impact of "price gouging" on everyday consumers and the need for a solution that addresses the root cause of inflation.
