Australian Economy

Two in five Australian businesses expect to hike costs as inflation soars


Source: Joel Carrett / AAP Image

Two out of five Australian businesses expect to lift the cost of their products by a greater amount than usual, the Australian Bureau of Statistics (ABS) says, in a new batch of figures outlining the sharp inflationary pressures digging into local firms.

In its May review of business conditions and sentiments, released Thursday, the ABS revealed 38% of surveyed business believe they will significantly jack up prices in the next three months.

Of those, 92% of businesses said the surging cost of goods and services will force them to elevate their own prices, and 78% circled the cost of fuel and energy as driving factors.

The findings come while headline inflation sits at 5.1% across the board, reflecting the long tail of supply chain breakdowns, European conflict shaking the global oil market, and extreme demand for consumer goods and construction services through the COVID-19 pandemic.

Staff costs remain a key concern, with 38% of businesses expecting a cost uptick declaring they expect to pay their workers more in the next three months.

A relatively slim 25% of businesses said the cost of finance would drive price hikes, suggesting the recent cash rate hike — the Reserve Bank of Australia’s first increase in 11 years — is yet to have an all-encompassing impact on the sector.

But inflationary pressures are being felt by businesses which don’t expect to lift costs, too.

Of the 48% of small businesses which expect their prices will not lift in the next three months, 46% said they needed to retain their customers.

And in stark news for the construction industry, 45% said they couldn’t lift prices due to their existing fixed-price contracts.

That figure speaks to the intense pressure faced by constructors and others in the building industry, as they attempt to reconcile skyrocketing material prices with contracts which may have been agreed years in advance.

Just 23% small businesses which didn’t expect cost increases said their turnover was rising in line with the cost of doing business — in other words, nearly one in four expect to swallow the cost of inflation rather than passing it to customers.

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