One of Australia’s top economists has revealed her shock at how many businesses “jacked up” their prices due to the rise in oil prices.
Data from the Australian Bureau of Statistics revealed that 72 per cent of businesses said the oil price shock negatively impacted their operations.
About 60 per cent made changes to their business operations as 48 per cent absorbed costs from the shock.
Westpac’s chief economist Luci Ellis said the magnitude of businesses that lifted prices after the shock hit had a significant impact on the economy.
“One of the things we were really struck by is just how many businesses immediately jacked up their prices in response to higher fuel,” Ms Ellis told Sky News.
Iran closing the Strait of Hormuz forced oil prices from about US$70 per barrel to about US$110 per barrel.
This forced diesel prices in Australia up from about $1.80 per litre to almost $3.20 per litre before settling back to about $2.13.
While petrol prices experienced a less intense climb from about $1.73 per litre to $2.54 per litre, before easing, the ramifications rattled throughout the local business sector.
Ms Ellis said the price rises forced many sectors outside transport to lift their prices.
“We were seeing quite considerable increases in building materials costs, and you can now see that in the ABS data we’re expecting a lift in some domestic services, partly because of delivery charges,” she said.
“I’m sure you’re being charged more at your local café than you were before the war because they’re facing higher delivery charges and they’re passing that on.”
Ms Ellis stressed the price pressures for customer-facing businesses such as cafes were also stretched by mandated wage increases.
“We have seen a bigger increase in award wages than what we’ve been expecting,” she said in reference to the 4.75 per cent wage increase announced by the Fair Work Commission.
“That’s yet another thing that will be adding to inflation in the next couple of quarters.
“If we’re right that inflation is higher than the Reserve Bank expects, it will respond.”
The ABS data showed that businesses in the manufacturing, transport, postal and warehousing sectors were most likely to be negatively impacted by the oil shock.
Companies in the wholesale trade and accommodation and food services industries followed closely behind.
It also revealed that 11 per cent of companies increased prices while those who chose to absorb the costs likely made the decision to try and ride out the shock.
While price rises plague consumers, RBA governor Michele Bullock said it was reasonable for companies to hike prices due to higher costs.
“(It’s) not unreasonable for firms, if they are seeing their cost base rise because of what’s going on, whether it be fertilisers for farmers or fuel, diesel for transport costs … to want to recover their costs,” Ms Bullock said after hiking rates in May.
“Because the alternative is if they can’t, they might end up going bust and that’s not good either.”