What, if any, is the impact of profit margins on inflation, relative to other drivers of inflation?

Answer

Profit margins can impact inflation when firms can raise their prices at a faster pace than their costs. Profit-led inflation occurs where high market concentration or essential services allow for significant pricing power. Independent Crown entity, the Commerce Commission administers and enforces laws relating to competition and economic regulation within these types of sectors, including telecommunications, energy, transport fuel, and the retail payment system. The Commission can investigate anti-competitive behaviour, investigate accusations and prosecute businesses, and set maximum revenue limits when a company operates as a natural monopoly. As a Government we have an ongoing work programme to improve competition in sectors where there are few players. This includes introducing the Commerce (Commerce Commission Reform) Amendment Bill, which passed its first reading in March 2026 This law aims to ensure the Commission effectively carries out its growing powers and responsibilities now and into the future.