Gas prices have soared since Russia’s invasion of Ukraine,driving up profits for oil and gas companies and feeding into inflation.Credit:Getty
In Australia’s case,almost all the inflation recorded in the March quarter of 2022 – the largest three-month rise in inflation in more than three decades – was attributable to company profits. Labour costs,such as wages,did not add to inflation.
By the end of the year,however,the December quarter inflation result was almost split between profits and labour as commodity prices eased and wages growth started to lift.
“A significant part of the unit profits contribution has stemmed from profits in the energy and agriculture sectors,well above their share of the overall economy,but there have also been increases in profit contributions in manufacturing and services,” it found.
Loading
All major oil and gas companies have reported large profits over the past year. Chevron more than doubled its profit to $US36.5 billion last year,Shell doubled its profit to $US40 billion while Exxon increased its profit to $US56 billion.
The OECD said one issue may be a lack of competition that is enabling businesses to pass on costs with relative impunity.
“A key policy issue is whether the observed aggregate increase in unit profits reflects a generalised lack of competitive pressures throughout the economy,or specific factors that have contributed to strong profit growth in a few sectors or in a subset of firms,” it said.
Last month,research by the Reserve Bank suggested little connection between high profits and high inflation.
It found in the resources sector,the high prices of commodities such as iron ore and base metals had delivered better profits to companies but not had an effect on inflation.
The profit margins of most businesses are being squeezed,according to Australian Chamber of Commerce and Industry chief executive Andrew McKellar.Credit:Alex Ellinghausen
While energy products had benefited from high global prices,which then lifted wholesale and retail gas prices,the bank argued this was a reflection of international issues.
“While higher energy prices have simultaneously boosted energy producers’ profit margins and consumer price inflation,the primary underlying cause is global energy market conditions rather than higher markups in the energy sector independently driving prices,” it said in its May statement on monetary policy.
Outside of resources,the bank found the overall profit share of businesses in the economy was only slightly higher than it was in 2019.
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the rise in corporate profits had been overwhelmingly driven by record commodity prices.
“High inflation and rising interest rates have heavily impacted the cost of doing business,with profit margins shrinking in many industries over the past two years,” he said.
“Price increases by businesses have been consistent with the fact that firms are only able to partially pass through cost increases in their final prices,reflecting competitive pressures and price stickiness.”