Economics update | 27 May 2022

Marked increase in electricity prices set for 2022-23
This week the Australian Energy Regulator (AER) released its determination on the default market offer (DMO), which sets the maximum price an electricity retailer can charge a standing offer customer in Queensland, NSW and SA. Victoria sets its own DMO, which was also released this week.

Western Australia is not part of the east coast grid controlled by the AER.

Overall, electricity prices for small businesses are set to rise well above inflation in NSW and Queensland, but only modestly in South Australia. NSW small business customers will see an increase of 4.3 per cent to 13.5 per cent in real term, Queensland 6.9 per cent and South Australia 0.2 per cent. Victorian small businesses can expect an increase in line with inflation (5.1 per cent).

The drivers of the increase relate mainly to a reduction in thermal generation from planned outages and higher coal and gas price, slowing investment in new capacity and increasing peak demand driving up the hedging costs for retailers.

While the DMO is the maximum price retailers can charge their customers, retailers offer a range of pricing structures, as well as incentives for new customers. With a high variability in electricity prices, small business owners should be encouraged to shop around electricity retailers or renegotiate their current electricity supply arrangement with their retailer.

Labour mobility on the rise
Labour mobility has ticked up sharply in the past year, according to data recently released by the Bureau of Statistics. It appears workers are taking advantage of the tight labour market to seek promotion or move to higher paying jobs. Of those that changed jobs, 57 per cent went to work in a different occupation, indicating workers are also using the tight labour market as an opportunity for a career change.

Women were more likely than men to change jobs, with 10 per cent of women moving to a different employer over the past year, compared to 9.1 per cent of men.

The increase in labour mobility aligns has coincided with high job increases, which increased 46.6 per cent over the same period. Overall, 23.5 per cent of businesses now reporting vacancies.

The high level of labour mobility is likely to partly explain the slower than expected growth in the wage price index over the past 6 to 12 months. The index calculates the changes in salaries and wages for a fixed sample of jobs within a fixed sample of organisations. It is not influenced by changes in the quality and quantity of work, or movement of people between jobs.

Business conditions challenged while capital expenditure moderates
Conditions remain challenging for many businesses, with the ABS business conditions and sentiment survey indicating that 38 per cent of businesses expect to increase their prices more than usual over the coming quarter. Businesses cite increasing costs of products and services (92 per cent), rising fuel and/or energy costs (78 per cent), other business overheads (50 per cent) and staff costs (38 per cent) as the reason for the price increase. While facing similar challenges of rising costs, almost half the businesses surveyed are unable to increase prices due to fixed-price contracts, advertising arrangements and the need to retain customers.

Manufacturing (58 per cent), construction (58 per cent), wholesale trade (57 per cent) and accommodation and food services (54 per cent) had the highest proportion of businesses intending to increase their prices over the next three months.

The survey also sought information on investment intentions, with 17 per cent of small businesses, 38 per cent of medium business and 58 per cent of large businesses intending to spend on new capital over the next three months. Factors influencing businesses investment decisions included access to capital (22 per cent), demand for products and services (18 per cent), tax incentives (7 per cent) and other government support (4 per cent).

The ABS also released its more detailed private new capital expenditure survey this week, showing business investment moderated in the March quarter 2022, down 0.3 per cent. This was driven by a dip in expenditure on building and structures of 1.7 per cent, as construction costs surge due to limited domestic production of building material and international supply chain constraints. While investment in equipment and machinery rose 1.2 per cent, it has yet to fully recover from the fall at the beginning of 2022 due to the disruption of the Omicron wave.

Despite substantial economic stimulus provided by the government and incentives such as the temporary full expensing measure, capital expenditure has remained relatively stable over the past 9 months, in line with pre-pandemic levels.

At an industry level, the investment was driven mainly by the electricity, gas, water and waste (9.9 per cent), transport, postal and warehousing (7.8 per cent), finance and insurance (7 per cent) and wholesale trade (6.1 per cent). This was offset by substantial declines in investment in education and training (-17.1 per cent), arts and recreation (-16.3 per cent) and retail trade (-11.4 per cent) and other services (-9.6 per cent).