Company profits are sinking even as inflation runs above target

Company profits have sunk nearly 9 per cent over the 12 months to September, throwing fresh doubt on claims that corporate greed is behind Australia’s inflation surge.

Mining was hit hard with profits falling by 8.8 per cent in the quarter, according to the Australian Bureau of Statistics.

But prices for consumers have continued to rise even as company earnings go backwards.

Underlying inflation remained above the Reserve Bank’s target band through the year to September at 3.5 per cent — down from 5.2 per cent in the prior year.

It marks a severe change from just two years ago when profits were much stronger.

The economy expanded dramatically coming out of the pandemic thanks to major stimulus and an export boom, and the resources industry helped drive rocketing corporate earnings.

That had sparked commentary arguing booming profits were behind the cost of living crisis.

But while a flood of demand briefly boosted sales and reined cash on businesses, margins were then eroded by rising costs as companies fought for workers and equipment. The Reserve Bank says demand is still above supply and that’s why prices keep rising.

Wages lifted 4 per cent for the past 12 months, according to the ABS.

“Cumulatively, company profits have fallen by almost 17 per cent from their peaks in early 2023,” Commonwealth Bank senior economist Stephen Wu said.

“This has been led by the mining sector, given the fall in commodity prices over the past couple of years.”

He said mining profits had “collapsed by 40 per cent” since peaking in the June quarter of 2022 — adding that the tailwind to government budgets from the industry was fading.

Profits in other industries also headed south, down 2.8 per cent, Mr Wu said.

The Monday data will feed into gross domestic product figures due later this week. Economists are tipping growth of about 0.4 or 0.5 per cent.

AMP’s My Bui said the economy would likely have a small rebound for the quarter.

“We see the quarter as an inflection point for economic growth to pick up slightly, driven by household and government spending, dwelling investments, and net exports,” she said.

It comes after a report by Oxford Economics released on Sunday night showed Australia’s economy was set for improved — but subdued — growth next year at 2 per cent.

A prolonged decline in incomes is also set to have been arrested as inflation slows and following stage 3 tax cuts.

Economist Chris Richardson also took a shot at successive Federal Governments for failing to structurally reform the economy, warning luck was running out for the budget.

After inflation and high exports helped drive the budget into two consecutive surpluses, he warned revenue was likely to fall in years ahead.

Mr Richardson forecast deficits of about $220 billion out to 2028.