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|Are wages or profits driving Australia’s inflation? An analysis of the National Accounts||403.53 KB|
Prices in Australia have clearly been rising faster than wages and other costs of production for many years leading to a sustained increase in the share of GDP accruing to profits. The recent outbreak of inflation has exacerbated this trend.
Applying the approach developed by the European Central Bank to Australian data shows that wages have played a trivial role in driving inflation in Australia in the last three years. Higher profits have played the dominant role over that same period.
While company spokespeople, such as Gerry Harvey, often suggest that they have ‘no choice’ but to increase prices when other costs rise, this is clearly not the case. Increasing prices in line with, or in excess of, rising costs is a choice to maintain or increase profit margins in Australia even though the profit share of GDP is at a near-record high.