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The anticipation of higher inflation in the coming years will have many businesses, including accounting practices, keeping a close eye out, according to experts at CPA Australia.
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What Australia’s inflation rate means for accountants
29 November 2021
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13 minute read
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The most recent episode of CPA Australia’s weekly podcast series, hosted by Dr Jane Rennie, general manager external affairs at CPA Australia and Gavan Ord, senior manager business policy at CPA Australia, offered up the professional body’s perspective on rising inflation and what it means for accountants and businesses across the country.
September quarter figures showed Australia’s annual inflation is now running at 3 per cent seasonally adjusted.
Speaking on the cause of current inflation levels, Mr Ord pointed to a jump in fuel costs and new dwelling purchases. Elsewhere, he said, labour shortages are leading to wage pressure, in addition to supply chain disruption, with shipping and freight costs up significantly.
“There’s also the pent-up demand, particularly in Sydney and Melbourne, [where] people have been waiting to spend for quite some time,” Mr Ord said.
“…Also, a bit of a factor is the time of year leading into Christmas, [which sees] increased spending. And there’s also ongoing COVID 19 disruptions also impacting.”
Mr Ord said some sectors are likely to be hit harder than others, particularly those that are importing goods.
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“Sectors that are importing goods are being hit harder through supply chain disruptions and transportation costs, where services businesses are not so much,” he explained.
“But on the services business aside, they’ve been impacted a lot by the labor shortages and the wage pressures that come with that.”
The cost of goods rising will put increased pressure on businesses, according to Mr Ord.
“I definitely think that will trigger wage pressure from employees and from unions. And that will flow through to individual businesses, but also in awards and minimum wage,” he said.
“So I definitely think over the next few months, we’re going to see this higher inflation rate, even though transitory, according to the RBA, will lead to wage pressures.”
Looking ahead
Going forward, Mr Ord said he expects inflation to go above the 3 per cent seen in September, continuing to rise over the next six months.
“Then hopefully by June 2022, we’ll start to see some decreases in inflation,” he said.
“But Australia is also going through labor shortages, pent-up demand, increasing transportation costs and supply chain disruptions. We’re also hearing from members that businesses are more willing to pass on costs than [they] have been in previous years.
“We hope that some of those, for example, the short-term labor shortages, we hope that they will begin to ease in the coming months as borders reopen international students and backpackers return but we can’t be certain they’ll turn into the numbers hoped.
“We believe that the transportation problems should hopefully be worked through. And if you look at the shipping problems in the West Coast of the US, they’re starting to work hard to address those issues. And on supply chain disruptions, generally supply chain disruptions take a good six months to work out historically, so hopefully, those problems will start to dissipate by April-May next year.”
From a business perspective, Mr Ord said inflation will be an issue in the short-term and something employers will need to consider in their pricing strategy, as well as labour/employment costs.
“I think it’s important not to place too much attention on high headline inflation figures, and listen to the advice [of] the experts and central banks, whether the increase will be temporary or not,” Mr Ord advised.
“I would suggest look to pass on the costs if you can otherwise, look for efficiencies in your business, or seek out new suppliers. If increasing prices, make sure your customers understand why and at this point in time, they’re pretty understanding of why businesses are increasing prices.”
Looking specifically at accounting practices, Mr Ord said employers can expect similar challenges.
“They’re going to experience cost pressures. But I think for an accounting practice, in particular, you’re going to see wage pressures. But those wage pressures have been building for some time because of supply shortages, skill shortages in the profession,” Mr Ord said.
“I think a lot of accounting practices might have their clients come to them for advice on pricing, and how to pass on costs or how to respond to price pressures, so they probably might pick up some more advisory work after this inflationary market.”
This episode formed part of CPA Australia’s weekly podcast series, in which Dr Rennie and Mr Ord discuss topic issues affecting businesses and the accounting profession.
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