‘Corporate price gouging’: sleight of hand for troubled economic waters ahead

The report also has multiple definitions of what "inflation" is.

First, it confuses inflation with price rises. Inflation is not price rises, although price rises can be a symptom of inflation.

Inflation is conventionally understood to be caused by too much money chasing too few goods leading to an erosion of the value of the currency while the value of the goods stays the same.

Mr. Fels more or less adheres to this definition of inflation in his analysis of the rise in prices immediately after we re-opened after COVID-19.

Most commonly, inflation is caused by governments issuing too much credit either through printing money or borrowing.

Some of this occurred during and post-COVID as we massively expanded the size of government expenditure without increasing taxes, but it also coincided with a decline in the amount of goods available due to the disruption of the economy.

A pedestrian moves along an almost empty George Street in the Sydney CBD, Australia, on June 28, 2021. (Lisa Maree Williams/Getty Images)

So there was an increase in credit, inflationary in itself, with a decline in the number of goods, leading to a more accentuated inflation than would occur if each had happened on its own.

So Mr. Fels' analysis agrees with the conventional definition-until it doesn't.

He introduces the idea that after the post-COVID bounce, corporate profits drove inflation.

He claims profit margins expanded and ignores the possibility that perhaps input costs continued to increase, as a result of inflation built into the system, and the exogenous shock of war in Ukraine, which drove energy prices sky high.

The justification for claiming corporate profits is the villain is contained in figures showing a decline in the share of the economy of labour. This can be seen in the graph below from the RBA March 2019 bulletin "The Labour and Capital Shares of Income in Australia."