South Australian businesses say they can’t pass on costs as Australia’s inflation rate rises to 6.1 per cent

Inflation has soared to a decades-high 6.1 per cent, and it’s left South Australian businesses to deal with a big problem.

South Australian businesses dealing with soaring overheads have not been able to pass cost increases on to customers, a new survey shows.

Australia’s inflation rate surged to 6.1 per cent in the 12 months to June this year, the Australian Bureau of Statistics revealed on Wednesday – the fastest rate in decades mainly due to supply shortages caused by the war in Ukraine, China’s zero-Covid strategy and widespread flooding on Australia’s east coast. The most significant price hikes affected new houses, fuel and furniture.

Adelaide’s inflation rate soared even higher, rising 2.1 per cent to 6.4 per cent for the 2021-22 financial year.

TERRY McCRANN: Inflation figure points to very sombre year for families

Business SA chief executive Andrew Kay said he was unsurprised by the CPI increase.

In an early release of the June quarter Business SA William Buck Survey of Business Expectations, Mr Kay said three quarters of businesses experienced “significantly above normal” price increases on overheads and materials.

“These are clearly not simple issues to resolve, and businesses understand that, with nearly two-thirds forecasting further significant increases in the September quarter,” he said.

“Interestingly, fewer than 40 per cent of businesses said that they were able to pass these cost increases on to the customer.”

Many businesses said they could not pass on the costs because of fixed-price contracts, or the fact they were limited by what the market would accept.

Only 8.5 per cent of businesses said they could fully pass along cost increases to their customers, Mr Kay said.

“Businesses were very forthcoming with their commentary,” he said.

“It is very clear the difficulties they are facing and gives us, as consumers, an understanding when we see local businesses increasing their prices.”

Calvin Burgess, managing director of St Mary’s-based HI Lighting, said his business had been passing on price increases where possible.

“The market accepts that in the construction industry everything has gone up,” he said.

However, he said the business has shielded itself from the worst of the issues facing the industry because it sources materials from within Australia whenever possible.

That decision, which Mr Burgess described as a “risk mitigation strategy”, has meant the business has avoided rising freight costs and overseas supply chain issues.

Calvin Burgess at HI Lighting. Picture: Matt Turner

“We’ve really leveraged the Australian-made angle and, overall, it’s been a positive experience for us over the past 12 months,” he said.

“It was strategic to use Australian where possible in the last two years because of all the disruption during Covid.

“So we did pivot that way, even more so, and having that flexibility made a huge difference for us. It meant that we were able to supply a lot of projects on time.”

Premier Peter Malinauskas said current inflation numbers “worry economists across the world” but the figures were worse in some overseas countries.

Premier Peter Malinauskas. NCA NewsWire/David Mariuz

“We know that costs are going up around the world and South Australia, Australia is not immune,” he said.

“Inflation is the working person's curse, and this means that people’s capacity to be able to maintain their standard of living is compromised, and that is something that my government is working to alleviate every way we can.”

But opposition treasury spokesman Matt Cowdrey said “things are only going to get worse unless the government softens the blow”.

“To date the Malinauskas Labor government has provided no answers, they delivered a budget with no broad cost-of-living relief and have failed to step-up and respond to changed economic conditions,” he said.

Prior to the release of the new CPI figure, most economists were forecasting the Reserve Bank of Australia would hike the cash rate by a further 0.5 percentage points at its August board meeting next Tuesday. Some economists have flagged the possibility that the RBA could lift by as much as 75 basis points.

The RBA has said it expects inflation to reach 7 per cent later this year, before falling.

Originally published as South Australian businesses say they can’t pass on costs as Australia’s inflation rate rises to 6.1 per cent