Official business indicator data reveals a larger-than-expected 10.6 per cent lift in Australian company profits in the December quarter.
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The Australian Bureau of Statistics' business indicators report, elements of which will feed into national accounts, also showed wages and salaries lifting by 2.6 per cent across the three months.
Economists were expecting a 1.8 per cent quarterly uptick in profits in the December quarter following a substantial 11.5 per cent fall in the September quarter.
Business inventories - stock on shelves and warehouses - fell by slightly more than expected, sinking 0.2 per cent for the quarter, but remain 5.9 per cent up in annual terms.
Fourteen out of the 15 industries captured in the indicator reported a profit, with non-mining industries improving 9.6 per cent in the quarter and mining up 11.6 per cent.
St George economists said profit margins were shrinking for many industries.
"When looking at the profit margins, eight of the 15 industries have lower margins than a year ago," St George economists Besa Deda and Jameson Coombs said.
"This means that their costs have gone up by a larger magnitude than revenue."
Commenting on business indicators data ahead of national accounts figures on Wednesday, JP Morgan analyst Jack Stinson said inventories tended to translate more directly to real GDP and would offset some of the strength in company profits.
While there are still more growth-related indicators to come, the firm is leaving its estimates for the December quarter growth unchanged at 0.9 per cent quarter-on-quarter.
The business indicator data follows the softer-than-expected wage reading last week that had some wondering why the tight labour market wasn't translating into stronger wage growth for Australian workers.
The wage price index lifted 3.3 per cent annually in the December quarter, falling short of the 3.5 per cent uplift expected by the Reserve Bank and markets.
HSBC chief economist Paul Bloxham said the prevalence of longer-term enterprise bargaining agreements in part explained the sluggish reaction to labour market pressures, with about 40 per cent of workers on these agreements that typically last two or three years.
The December quarter WPI figures also showed workers on individual agreements, which in theory should be more responsive to labour market tensions, were also a key driver of sluggish quarterly growth.
Mr Bloxham said there was little evidence of a "prices-wages spiral" as feared by the Reserve Bank - where increasing prices drive wages higher, which in turn pushes prices higher again.
"Indeed, with high inflation and strong nominal income in the economy, it's more like a prices-profits spiral," he said.
Mr Bloxham said lacklustre competition regulation in Australia was part of the problem.
"Strong demand seems to have allowed firms to maintain pricing power, push through supply-side cost increase to prices, with only a sluggish pick-up in wages growth also containing labour costs - all supporting profits," he said.
Australian Council of Trade Unions secretary Sally McManus said profits were growing at four times the rate of the total wages bill of companies.
"Today's profit data shows companies are raising prices more than they need to and gouging workers," she said.
Australian Associated Press
