Believe it or not, supermarket ‘price gouging’ is not to blame for your high grocery bill

The blame for inflation lies primarily with the government - this one and the last one.

Our response to COVID-19 was unbalanced and involved borrowing to flood the economy with money so people didn't mind taking their enforced gap year. When we came out of COVID-19, this coupled with a supply shock due to disruption of worldwide logistics pushed our inflation rate up towards 8 percent.

While the Reserve Bank of Australia belatedly, but ultimately appropriately, hiked interest rates to dampen demand, the government went in the other direction.

They allowed out-of-control immigration to collide with overly ambitious spending plans, re-regulation of some sectors of the economy, dauntingly generous public sector wage settlements, and tampering in energy markets, to push in the other direction.

All of this was aided and abetted by the trade unions and will only get worse if the inaptly named "Closing the Loopholes" industrial relations legislation is passed.

On the other hand, the case against the supermarkets should never leave the prosecutor's desk.

If "price gouging" were driving inflation, then you would expect the increase in food and groceries to be greater than the general rate of inflation.

Yet in the year from September 2022 to September 2023, the CPI increased 5.4 percent while that of food and non-alcoholic beverages was only 4.8 percent.

If anything was driving inflation, it was insurance and financial services (8.6 percent), housing (7 percent), transport (5.6 percent), recreation and culture (5.6 percent), and health (5.4 percent).

Then, if you look at the financials of the two major supermarkets you find that their after-tax profit amounts to somewhere between 2.53 percent (Woollies) and 2.57 percent (Coles) of turnover.

What that means is their scope to lower average prices without going out of business, once you take account of their company tax, is no more than around 3.5 percent, or around a third less than the increase in the CPI, and that would be a once-off effect only.

Coles and Woollies are sometimes described as a duopoly, which leads to calls for more competition in the sector. I think it would be difficult to introduce another competitor of similar size, and I don't think it would make much difference.