Running an Australian business is getting more expensive by the day. In April 2022, data released by the Australian Bureau of Statistics (ABS) revealed that 57% of Australian businesses had experienced increased running costs in the previous quarter, and 21% of businesses said their costs had increased to a “great extent.”
Here, we identify the major factors driving the cost of doing business in Australia upwards, and we point to a simple way of easing the pressure.
A Perfect Storm for Inflation
Perhaps the biggest factor driving the increased cost of doing business in Australia is inflation. Just this month, Australia’s inflation rate reached 6.1% - the fastest annual increase in 21 years. We seemingly hear about skyrocketing inflation whenever we turn on the news these days. But what does the term “inflation” actually mean?
Inflation refers to a decrease in the effective purchasing power of money. If you have $1,000 now and the annual inflation rate is 10%, it means that in one year’s time you will get 10% less goods and services (on average) for your $1,000. Effectively, then, inflation eats away at the real value of money. Sometimes it takes small bites, other times (like now) it takes larger bites. Either way, inflation inevitably increases the prices of goods and services, leading business costs to spiral upwards.
What Causes Inflation?
Inflation has two main causes:
- An increase in the money supply, which undercuts the value of existing money
- A decrease in the supply of goods and services, whose relative scarcity increases their price
In the wake of covid-19, 2022 represents a perfect inflationary storm. Not only are we dealing with the on-flow effects of governments liberally printing money and boosting credit to stimulate their economies in response to the pandeZembl, but we are also dealing with the other major factor impacting business costs in Australia: supply-side issues.
Labour Shortages + Transport Bottlenecks + Production Delays + War = Supply Issues
Companies the world over are facing issues in sourcing the products and people they need to do business, and Australian firms are no exception. Skilled labour shortages - which may in part be attributed to the Great Resignation - are currently compounded by two issues impacting the supply of commodities and goods.
First, the world is still feeling the downstream effects of covid-related lockdowns, which shut down businesses throughout 2020 and 2021, causing massive transportation bottlenecks and production delays. Second, Russia’s invasion of Ukraine and the ensuing trade sanctions have seriously undercut the global supply of key commodities, especially oil and wheat.
A decreased oil supply is particularly problematic for Australian businesses because of the ripple effect it has on energy prices. Oil is still a critical source of energy throughout much of the world, so anything that reduces the oil supply necessarily increases demand for other forms of energy, consequently raising energy prices across the board.
Lowering the Cost of Doing Business in Australia
ABS data suggests that the most commonly reported business cost increases are for fuel and energy. As such, it is more important than ever for businesses to shop around and find the lowest energy prices available on the market at a given moment. For business owners who simply don’t have time to shop around themselves, Zembl can help.
At Zembl, we regularly review the energy market and work with businesses to help them take control of their energy bills and achieve potential savings. Contact us for an obligation-free review today.
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