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Are wage hikes driving inflation in Australia?

News • 20th Jul 2022 • 2 Min Read

Are wage hikes driving inflation in Australia?

Compensation & Benefits

Author: Alyssa Navarro Alyssa Navarro
1.1K Reads
Although workers are forced to make personal and financial sacrifices to control inflation, data shows that the corporate sector may also need to tighten its belt.

What's driving inflation levels in Australia? It's not wage increases but surging corporate profit, according to a new study by The Australia Institute.

The report found that wages did not contribute to inflation in financial years 2019-20 and 2020-21. In fact, wages added only 0.6% to the 4.1% increase in prices thus far in 2022, which has been marked by what analysts call the cost of living crisis.

The results come on the heels of Treasurer Jim Chalmers' warning that families in Australia may have to endure difficult times in the coming months as inflation continues to skyrocket, adding to the increasing cost of living.

Read more: How employers can support workers amid inflation

Inflation is sitting at 5.1% – the highest level since the start of the millennium – and is expected to reach 7%.

Richard Denniss, chief economist at the Australia Institute, said that while business groups and employers fear increased wages contribute to higher costs of living, a more significant factor is the growing profit of companies.

"Australia isn't experiencing a wage-price spiral, and it's at the beginning of a price-profit spiral," Denniss said.

Although workers are forced to make personal and financial sacrifices to control inflation, data shows that the corporate sector may also need to tighten its belt, Denniss added.

Read more: How to build a recession-proof career

Companies are arguing that they have no choice but to increase their prices, but Denniss said that making record and rising profits proves they have many options.

He added that a shortage of competition in the corporate sector, not a lack of labour, drives up the cost of living in the country.

The Australia Institute report said it is clear that competition policy and other policies designed to control prices significantly impact the country.

Read More

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