RBA Says Profits Don’t Affect Inflation—Experts Think Otherwise

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The Reserve Bank of Australia (RBA) stated that business profits do not affect the country’s inflation rates. Still, many experts believe it is more complex than that.

According to the RBA’s statement on monetary policy released just this month, a rise in profit margins may be a causal factor and be an additional factor in the rising inflation only if the companies have little to no competition, driving them to take advantage and use inflation rates to balloon their markup values.

The statement also mentions that “Alternatively, rather than a driver of inflation, increased profit margins could simply be a by-product of strong demand in markets where firms are price-takers and prices have risen to match demand to limited supply, or margins could have increased temporarily in anticipation of future cost increases.”

Simply put, the RBA says that companies have raised their prices because their costs are steadily rising due to inflation and are not directly impacting inflation. However, BetaShares chief economist David Bassanese says otherwise.

The chief economist stated that the RBA analysis suggests that price gouging was not an essential factor for the inflation surge but in reality, it was not as simple as that. Bassanese added, “This was not profit gouging in a strict sense, but it does suggest much of the rise in local inflation through electricity prices was at least partly the result of windfall profits earned by companies. This suggests rising corporate concentration and market dominance.”

Other experts feel that if companies continue to take advantage and utilise inflation to cover their increasing prices to maximise profit margins, many Australians will need help with their everyday needs.

A recent study showed that many Australians are feeling the bite of the inflation crisis to the point that they are digging into so much debt while trying to purchase living essentials. Many are now relying heavily on using their credit cards. One in four Australians can only manage their finances with the help of credit cards.

Other experts also noted that if this continues, it is very likely that the country will plunge into consumer recession. The RBA will likely decide to pause their interest rate hikes soon and unburden Australian consumers.

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