In case you missed it, Australia is in the middle of company reporting season. While it looks like a big end of town show-and-tell for stock market players, in reality it’s an important economic health indicator for profits, expected job creation and even inflation.

For example, we learnt that Woolworths posted a $1.6 billion profit for the last financial year, which was a rise of 4.6%. Incidentally, this is lower than the current inflation rate of 6% but it is on the way down if you look at the most recent readings.

The June quarter inflation rate was 0.8%, which annualizes to 3.2%. This says inflation 12 and nine months ago was a lot higher than it is now. And the best news out of the Woolies report was this from CEO Brad Banducci: “Looking ahead to FY24 [the current financial year], we expect food inflation in Australia and New Zealand to moderate…”

Woolies’ rival Coles reported a $1.1 billion net profit, which was a rise of 4.8%. The similarity of these profit jumps has to be connected to the price settings of both companies.

Recently, Ross Gittins, economics editor of the SMH, looked at how we can beat inflation and argued that it shouldn’t be simply raising interest rates. Raising interest rates says we have to kill jobs to slow down spending and then inflation should fall.

In the theoretical world of economics, prices rise because demand is greater than supply. But if we can shrink demand, then prices will fall. That’s why raising interest rates is used to bring down inflation. It would be better if we could increase the supply of ‘stuff’ and that too would reduce prices. But we know Australia is really bad at increasing the supply of houses, seats on planes, mobile phones, telco services and other goods that have prices a lot higher than we see overseas.

Recently my 2GB colleague Ben Fordham revealed how cheap dishwashing tablets are in Germany compared to here. The price difference was outrageous and gives us a clue to why Coles and Woolies have reported billion dollar plus profits.

Gittins argues Australia has a competition problem. He compares the real world to theory very realistically.

He argues that theory predicts this: “When one firm decides to raise its prices and fatten its profit margin, the others undercut it and it either pulls its head in or goes out backwards.” But reality is different.

 “In the real world, industries are increasingly dominated by just a few huge firms – firms that have become so mainly by taking over their smaller competitors. This is true in all the rich economies, but none more so than ours.”

This isn’t just Ross beating up on big business, as he explained. “This year the European Central Bank, the International Monetary Fund and the Organisation for Economic Co-operation and Development have delved into the national accounts and determined that rising profit margins explain a high proportion of the recent inflation surge,” he revealed.

This bout of inflation makes me think of the 1990s when Alan Fels was the boss of the Australian Competition and Consumer Commission (ACCC). He was always in the news with the nickname of Dr No, as he often said “No” to big business mergers that KO competition.

I bet you don’t know the name of the boss of the ACCC. It’s Gina Cass-Gottlieb. Lots of Australians worried about the cost of living would really like to hear a lot more from her and her team in the future.

By the way, despite all the challenges of inflation and 12 interest rate rises, AMP’s Shane Oliver reported on the company profit story so far and found that “45% of companies have surprised on the upside, which is just above the norm of 43% and up on the February reporting season when it was just 27%”.

This is a good sign that our economy isn’t crumbling but it also partly explains how the pricing power of our big companies is great for their bottom lines, while not all that great for ours!