Inflation is being amplified by firms with market power

27 Jul 2022

business man with telescope looking off cliff at upward arrow

Professor John Quiggin and Professor Flavio Menezes write for The Conversation

The upsurge in inflation has revived old debates about what causes it.

Until recently, it has been an article of faith among both businesses and union leaders that inflation is “cost-push”, meaning it is caused by higher input prices.

Businesses (and Reserve Bank governor Philip Lowe) fear a wage-price spiral, in which wages push up processing costs, and prices push up wages.

Union leaders, including ACTU Secretary Sally McManus, suggest it’s growing profits that are adding to prices and pushing up inflation.

Both versions of the cost-push theory are problematic.