Major Aussie businesses are turning to “dodgy” pricing practices to rip off customers, with billions in corporate profits driving high inflation rates, a damning new report has found.
The report, commissioned by the union movement, comes amid a federal inquiry into price gouging over concerns major supermarket chains were overcharging customers struggling with the high cost of living.
Allan Fels, the former chair of the consumer watchdog ACCC, said rising prices were not only driven by inflation but by greed, corporate gouging and “profit pushing”.
The cost of unfair prices to the Australian public had tallied up to a shocking $100bn per year, he told the National Press Club on Wednesday.
“Australians are paying prices that are too high, too often,” Professor Fels said.
“A significant part of the cost-of-living crisis has been caused by companies in uncompetitive markets taking advantage of their market power and relying on gaps in government policy to squeeze consumers and often suppliers to breaking point.
“Reform to curb this is urgent.”
Grocery prices across Australia have increased by 20 per cent since 2020, far higher than the 8 per cent increase recorded over the past decade.
Prices across Australia are increasing far quicker than they fall.
In the new report commissioned by the ACTU, Professor Fels identified several pricing practices major businesses use to grab extra dollars from customers.
This includes tactics such as ‘loyalty tax pricing’, which occurs when initial prices are low and then increase slowly over a longer period unbeknownst to the customers.
Drip pricing, which happens when companies only reveal part of the price of a product, has also rapidly spread through flight tickets, hotels and short-term homestays, prepaid phone charges and medical procedures.
Businesses are also taking advantage of algorithms to set higher prices, Professor Fels explained.
“This can sometimes operate like a cartel, especially if the algorithms are programmed to cooperate with the prices of competitors,” he said.
In his report, Professor Fels targeted airline giant Qantas as a major culprit of price gouging, explaining that airfare rises over the three months to December 2022 were sizeable enough to contribute to overall inflation on travel.
Professor Fels said a lack of effective market competition had enabled the national airline to jack up its prices.
“A quarter of the inflation that month was mainly due to Qantas aggressively raising airfares, although Virgin may have also contributed,” he said.
The national carrier is facing legal action from the Australian Competition and Consumer Commission over allegations it sold cancelled tickets to customers.
Professor Fels recommended a major review into the national energy sector, noting that electricity prices had “dramatically increased” over recent years.
“The electricity industry is riddled with questionable prices,” he told the National Press Club.
“This is not surprising. It is concentrated at all levels and includes also a higher degree of vertical integration between generators and retailers. There is regular price gouging according to the regulators themselves.”
Professor Fels said his inquiry had been flooded with concerns and submissions over supermarket prices.
In his report, he noted the use of “misleading” price tags being used on “normal grocery prices” which businesses often use to sell an item to claim it is a discount.
“Misleading price displays are illegal but despite this, there is no prescribed minimum period where a business must advertise,” Professor Fels said.
The Albanese government tasked the ACCC to conduct a 12-month inquiry into pricing and competition in the supermarket sector.
Public hearings are expected to run over the coming weeks.
Ahead of the inquiry, Coles recognised that prices may have gone up across its stores but said it had not translated into a greater profit for the business.
“As one of Australia’s largest supermarkets, we take seriously our core role in providing essential goods to Australians,” its submission read.
“We are always looking at ways to deliver value to our customers and are committed to helping lower the cost of living.”
Professor Fels said the public would “deeply welcome” more action on prices from the federal government.
“I think we should have more probing by governments and shaming about higher prices,” he said.