A previous report from the Centre showed that 69% of excess inflation (above the Reserve Bank’s 2.5% target) since end-2019 arose from higher unit corporate profit margins, while only 18% was due to labour costs. The new research provides detail on the distribution of those excess profits across different sectors in the Australian economy.

By far the biggest profits were recorded in the mining sector, where corporate operating profits surged 89% since the onset of the pandemic. Those profits resulted from sky-high prices for fossil fuel energy (including petroleum products, gas, and coal). Thanks to those price hikes, the mining sector now captures over half of all corporate profits in the entire Australian economy.

Less spectacular but significant increases in corporate profits are visible in several other sectors of the economy, too – not just mining. Profits swelled rapidly in wholesale trade, manufacturing, transportation, and other strategic sectors.

In these strategic industries, businesses could exploit supply chain disruptions, consumer desperation, and oligopolistic market power to increase prices well beyond production costs.

In other sectors (including arts & recreation, hospitality, and telecommunications) profits have been flat or falling since the pandemic.

Early signs in 2023 that inflation (and corporate profits) had peaked, and were returning to normal, have been thrown into question by a renewed threat of profit-price inflation: the OPEC+ cartel decided earlier this month to curtail oil production to boost world prices.

Policy-makers need to acknowledge the role of record profits in driving recent inflation – and develop alternative policy responses (such as price caps in strategic markets, excess profit taxes, and targeted fiscal support for working and low-income households) to manage current inflation in a fairer and more effective way.