Businesses and industry groups warn the supply chain crunch will push prices up for the next 9 to 18 months

Businesses and industry groups warn the supply chain crunch will push prices up for the next 9 to 18 months
Adelaide: People walking along the Rundle Mall in Adelaide CBD at sunset, viewing towards West. Rundle Mall is the premier shopping area of South Australia
  • After the ACCC released a warning that supply chain disruptions would likely force Australian businesses to pass on costs to consumers, a raft of companies have been pressed on the issue.
  • Many retailers are working hard to absorb these costs in the short-term however they will ultimately passed onto customers, experts say.
  • “It’s a careful balancing act in terms of how retailers deal with these costs,” Paul Zahra, chief executive of the Australian Retail Association, told Business Insider Australia.
  • Visit Business Insider Australia’s homepage for more stories.

Amid unprecedented demand for consumer goods and services and supply chain chaos, businesses and retail industry leaders are warning consumers to prepare for price increases to persist over the next nine to 18 months.

In early November, a report from the ACCC outlined the impact to Australian businesses of supply chain disruptions and said costs now risked being passed on to consumers. 

Now, a number of Australian businesses are being pressed on how they will manage the inflation expected as soaring shipping costs lift the price of imports.

Furniture retailer Nick Scali’s chief executive Anthony Scali in late October told shareholders disruptions caused in part by lockdowns in its supply hub in Vietnam meant it would be forced to push through price rises of as much as 10%.

Sanjeev Gandhi, chief executive of mining and infrastructure corporation Orica said inflation would remain a key issue for businesses operating in Australia.

“Inflation is a massive challenge, and that’s something I expect will continue,” Gandhi said following the company’s recent financial results. 

“Inflation is all over the place… We see energy inflation, we see inflation in supply chain costs, we see inflation in our input costs, we see labour cost inflation,” he said. 

However many of Australia’s corporate giants are reluctant to publicly flag the supply chain crisis will force them to pass on costs to consumers. 

A spokesperson for Wesfarmers, which owns Target, Kmart and Bunnings, told Business Insider Australia it didn’t anticipate its customers would experience shortages or price increases in the final months of this year. 

“Although there have been some supply chain disruptions, we are well-placed with inventory in the lead up to the important Christmas trading period,” the spokesperson said.

However, they did admit that “risks remain” around “delays in ports and last mile deliveries.”

Nishad Alani, chief executive of hospitality and retail holding company Retail Zoo, said it was well-placed to rein in risks, but it expected that many other companies would see wages and costs go up as a result of inflation. 

Price rises are already being illustrated in government data. Recent ABS figures revealed that underlying inflation rose from 1.6% to 2.1%, making it the first time in five years that core inflation has been above 2%. 

Capital Economics economist Ben Udy said higher shipping and import costs would soon feed into higher inflation.

Udy also suggested this could lead to faster wage increases, which could potentially lead the RBA  to tighten monetary policy. 

Costs will ‘ultimately passed onto the consumer’

Paul Zahra, chief executive of the Australian Retail Association, said the supply chain continued to face “incredible pressure” that would inevitably impact the retail sector as it geared up for Christmas trading. 

With container fees up to seven times their usual rate, retailers are grappling with how to best manage additional costs. 

“It’s a careful balancing act in terms of how retailers deal with these costs,” Zahra told Business Insider Australia.

“Most retailers are working hard to absorb these costs in the short-term however, at some point these costs will be ultimately passed onto the consumer,” he said.

Zahra said the ARA is predicting it will take another nine to 18 months for conditions to return to normal for retailers and consumers. 

Taylor Blackburn, a finance expert at Finder, told Business Insider Australia many companies — particularly those with expanded e-commerce offerings — would be grappling with how to resist passing on costs to their customers. 

Finder research shows that long delivery times and high shipping costs ranked as the biggest issues for consumers. 

“While the pandemic introduced many to online shopping for the first time, it is likely that supply chain disruptions and huge demands on delivery services have forced consumers to grapple with extended delays,” Blackburn said.