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Who’s responsible for skyrocketing inflation? A new report says it isn’t you

February 7, 2024
in Science
Who’s responsible for skyrocketing inflation? A new report says it isn’t you
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Key PointsAn inquiry commissioned by the ACTU and led by a former chair of the ACCC has issued its final report. The report argues the ongoing cost of living crisis is largely due to corporations unduly increasing prices.In response, some of Australia’s largest corporations have told SBS that they’re not taking advantage of consumers.

A newly released report has cast doubt on claims made by the governor of the Reserve Bank of Australia (RBA) that inflation in Australia is largely “demand-driven”.

The 80-page report, produced by former chair of the Australian Competition and Consumer Commission (ACCC) Allan Fels says the ongoing cost of living crisis is largely due to corporations unduly increasing prices.

The results and recommendations of the inquiry — commissioned by the Australian Council of Trade Unions (ACTU) — were presented by Professor Fels at the National Press Club on Wednesday.

Inflation hitting all hip pockets but some prices rising faster than others

Before the pandemic, prices were rising slowly — mostly below the RBA’s target range of 2-3 per cent.

Between March 2021 (the last quarter before inflation left the target band) and September 2023, headline inflation increased by a total of 14.8 per cent.

The report stated that, in the same time frame, real wages had declined by 5.6 per cent, leaving them the lowest they’ve been since June 2009.

“Workers have lost over a decade of progress in living standards”, the report concluded.

The largest price increase, according to the report, was in automotive fuel (45.4 per cent), and international holiday travel and accommodation (36.3 per cent).

Among the top 30 price increases was cheese, which saw a cumulative increase of 27.3 per cent, while bread went up by 24.1 per cent.

Milk experienced price hikes of 22.7 per cent, while prices of ice cream and other dairy products increased by 22.5 per cent. The cost of eggs increased by a cumulative 19.7 per cent, and breakfast cereals prices went up by 19.2 per cent.

Business pricing contributed significantly to inflation, report says

In November last year, RBA governor Michele Bullock said inflation in Australia was “

“.

“Hairdressers and dentists, dining out, sporting and other recreational activities — the prices of all these services are rising strongly,” she said to explain her analysis.

In his report, Fels expressed doubt that excess demand and rising labour costs — widely considered to be the main causes of inflation in the 1970s and 80s — were behind post-COVID inflation.

He cited the unprecedented surge in business profits in Australia during the COVID-19 pandemic and afterwards.

“The spectacular rise in profits cannot be explained by increases in real output or sales for companies,” he stated in the report.

He noted that from late 2019 to early 2022, unit profit costs surged by over 35 per cent, alongside the parallel acceleration of inflation. But workers didn’t get much of a pay raise until later in 2022.

“Business pricing has contributed significantly to inflation,” Fels said in his address today.

“Price gouging occurs when a business takes advantage of its market power and sets prices well above the levels that would occur if there was competition.”

‘Rockets and feathers’ pricing and other practices

Fels analysed a selection of business pricing practices that he called “exploitative”.

While not unlawful, those practices “enable the extraction of extra dollars from consumers in a way that would not be possible in markets that are competitive, properly informed and that enable overcharged consumers to readily switch from one supplier to another”.

The practices included loyalty taxes, drip pricing, ‘excluse-flation’, ‘rockets and feathers’ pricing and others.

Loyalty taxes refer to the practice of setting low prices to draw in customers initially, but then raising them dramatically in later years, making it difficult for consumers to notice or switch to another provider. This practice is most common in industries such as banking, insurance and energy, the report argues.

Drip pricing is a strategy in which only a partial price is advertised, and the full amount is revealed only during the buying process.

‘Excuse-flation’ refers to the practice of businesses raising prices without any valid justification, using general inflation as an excuse or ‘camouflage’.

The practice of ‘rockets and feathers’ pricing is one of the main issues today, Fels said.

The term describes the process of prices going up “like a rocket”, but as

— as it has recently — prices fall slowly “like a feather falling to the ground”.

An older man with red glasses wearing a suit speaks into a lectern microphone

A report by Allan Fels found that rising prices were not just caused by true inflation but often by greed, corporate gouging and “profit pushing” by companies with too much market power. Source: AAP / Mick Tsikas

“A recent example concerned meat prices when prices paid to farmers for lamb fell, but retail prices did not, at least until there was publicity, including from this inquiry about the delay,” he said.

The main recommendations

One of the major recommendations from Fels’ report was the establishment of a national competition and pricing commission, which would be responsible for conducting ongoing market reviews and in-depth investigations of the determinants of high prices.

This commission would work alongside the ACCC but would operate independently, taking on some of the enforcement responsibilities while conducting essential price studies.

To strengthen Australia’s competition law and policy, the report suggested several enhancements, including strengthening merger test provisions to prevent potentially anti-competitive mergers.

In terms of specific sectors, recommendations include increasing banking portability to facilitate seamless account switching, reviewing and potentially redesigning the wholesale energy market and lifting parallel import restrictions on electric vehicles to lower prices.

The inquiry report also proposes regulating aviation prices in a similar manner to utility pricing, closely monitoring early childhood education and care pricing decisions, and scrutinising medical specialist fees for greater transparency and fairness.

The inquiry, which was announced last year, held hearings in Melbourne, Sydney, Adelaide, Cairns and Canberra and received more than 750 submissions and detailed contributions from community members, experts, businesses and their representatives, think tanks and unions.

Now largely working in academia, Fels was previously chair of the ACCC and its predecessor bodies, the Prices Surveillance Authority and the Trade Practices Commission. He was also a member of the Prices Justification Tribunal from 1973 until 1981 and Prices Commissioner Victoria from 1981 until 1989.

Australia’s largest corporations deny they’re taking advantage

In response to the report, some of Australia’s largest corporations have denied the accusation that they’re taking advantage of consumers.

A Woolworths spokesperson told SBS News that: “while inflation is moderating, we continue to be committed to ensuring our customers get value every time they shop with us.”

Coles said: “disappointingly, the ACTU’s union-led inquiry neglected to engage the supermarket sector or consider the many factors which affect supermarket pricing.”

The Australian Banking Association responded with: “Australia’s banking sector is experiencing some of the fiercest competition we have seen in many years.”

A spokesperson for the Australian Energy Council said: “The National Electricity Market is one of the most regulated markets in Australia and is closely monitored by a range of government bodies and regulators, including the ACCC, the Australian Energy Regulator and the Victorian Essential Services Commission.”

Qantas said: “The fact is airfares have dropped significantly. Government data shows that average fares across the industry have declined from their December 2022 peak.”

SBS News also contacted Virgin Australia and the National Retail Association who did not provide a statement.

>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : SBS – https://www.sbs.com.au/news/article/price-gouging-and-unfair-pricing-practices-report-in-numbers-explained/kpd2hlp90

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