Workers have paid the price for inflation driven by corporate profits, OECD report confirms

The OECD’s annual employment outlook confirms that not only did profits drive Australia’s inflation in 2022, but that growing profits are also behind the most recent increases in prices that led to the Reserve Bank raising rates.

In February this year, the Reserve Bank raised interest rates because it was worried about rising inflation in the last 6 months of last year. However, analysis by myself and David Richardson, showed that the major cause of increased inflation was increased profits.

Unfortunately, this was just a repeat of what occurred in 2022 and 2023, where the RBA punished workers with higher interest rates out of a misguided belief that inflation was being driven by higher wages and out of fear of a ‘wage-price spiral’.

The RBA believed that the level of unemployment was too low, and as a result, wages would grow faster, and then businesses would increase prices in response, and then workers would in turn bargain for even higher wages.

In September 2022, when announcing the fifth 50 basis point increase in the cash rate in a row, the RBA governor stated that:

“Wages growth has picked up from the low rates of recent years and there are some pockets where labour costs are increasing briskly. Given the tight labour market and the upstream price pressures, the Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.”

At the time, however, analysis by David Richardson, Matt Saunders and Richard Denniss had revealed that labour costs were not driving inflation at all.

Their research showed that companies were taking advantage of the end of the pandemic and the Russian invasion of Ukraine to increase prices and profit margins. They estimated that increased profits accounted for about 60 percent of recent inflation.

Despite being based on analysis of the national accounts as had also been conducted by the European Central Bank and the US Federal Reserve, these findings were widely criticised by conservative economists, media and institutions.

Research by Jim Stanford in early 2023, building on the work by Richardson, Saunders and Denniss which found that excess corporate profits accounted for 69% of additional inflation beyond the RBA’s target produced even more vociferous criticism.

The AFR ran multiple articles including one in which the then president of the Academy of the Social Sciences in Australia called on the Australia Institute to “admit their mistake and retract their so-called analysis”.

The RBA also sought to undermine the research because it demonstrated that its approach of raising rates was wrong because it incorrectly punished workers rather than focused on corporate profits.

The research was vindicated when, in the middle of 2023, an OECD report confirmed the Australia Institute’s research by finding that “corporate profits contributed far more to Australia’s rise in inflation through the past year than from wages and other employee costs.”

A new report by the OECD released earlier this month further reinforces our findings by revealing that in 2022 profits were a greater driver of inflation in Australia than they were in either the Euro area or the United States.

The 2026 OECD Employment Outlook found that not only were profits clearly the main cause of inflation in 2022, but they confirmed our research that the cause of rising inflation in the last half of 2025 and the early part of 2026 was profits, not labour costs:

Even more damning for those who criticised our research of 2022 the OECD report compared the causes of inflation since 2015 in Australia, the Euro area and the USA:

It showed that profits were a much bigger driver of inflation in Australia than in the other economies.

This new OECD report should put to bed any of the criticisms by vested interests against our research. But it also should warn that the RBA should not fall into the same error and continue to punish workers for inflation that is not of their doing.