Price hikes inevitable as manufacturers face tight profits

Australian manufacturers are bearing the brunt of rising input costs and labor shortages, with the pressure expected to drive a new wave of price increases while households are hit by higher interest rates.

Almost one in two manufacturers saw new orders increase in the September quarter, but labor shortages mean manufacturers cannot cope with higher demand in the December quarter, according to a new report from Westpac and the Australian Chamber of Trade and Industry (ACCI).

“Manufacturers have long warned that labor and skills shortages are a handbrake on their growth, often preventing them from pursuing new opportunities,” said Innes Willox, director of Ai Group’s governing body that includes manufacturing, engineering, engineering and manufacturing logistics company.

Industry group boss Innes Willox says labor and skills shortages are weighing on local manufacturers.

Industry group boss Innes Willox says labor and skills shortages are weighing on local manufacturers.Recognition:James Brickwood

Andrew Hanlan, senior economist at Westpac, said supply headwinds hampered manufacturers’ ability to produce at a scale “not seen since the early to mid-1970s” and squeezed profit margins.

“The clear message…is that consumers should brace themselves for more sharp price increases,” he said.

According to figures from ABS, the number of employees in manufacturing has shrunk by 120,000 in the last 12 months. Food manufacturers in particular lost the most workers (27,000), followed by metal manufacturers (21,900).

Two in three (67.5 percent) of manufacturers are struggling to find labor and three in five manufacturers say they are struggling with higher input costs, according to the ACCI/Westpac survey.

But Jim Stanford, director of the Australia Institute Center for Future Work, said the manufacturing industry’s labor problems predated the pandemic and were instead the result of long-term neglect.

“It’s a 15-year trend. Manufacturing employment in Australia has been declining since around 2008 and that’s because we’ve refocused our economy on resource extraction and exporting rather than making things,” Stanford said. Price hikes inevitable as manufacturers face tight profits

Brian Lowry

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