My favorite part of this whole thing is how many people are absolutely falling over themselves to say "there's no way companies took advantage of decades of consolidation and the political narrative of free money leading to inflation to raise prices for more profit", meanwhile the companies themselves are bragging about raising prices just because they can. In their own earnings reports.
Okay, so let's set consolidation aside, since I agree that's a real problem in some sectors.
took advantage of...the political narrative...to raise prices for more profit
I genuinely don't understand why so many people think this matters. What do you think would have happened if companies had decided to raise prices without having an "excuse" like this?
Prices aren't kept under control by consumer outrage; we all may be mad about food prices, but we all still have to eat anyway. Yes companies are bragging about being able to raise prices, but it's not "because they can", it's because there's a supply/demand mismatch.
The cause of that mismatch is complicated and varies by market sector, but this isn't some case of like, they couldn't raise prices in the past because people would get too mad at them, but now they've finally figured out how to fool everyone into not getting mad. It's clearly a much more nuanced situation we're in, no?
In some areas of the economy, there truly were inflationary pressures that led real price increases. But there's always the human element and FOMO at play. Once "we're experiencing inflation" became a thing, it also presented an opportunity for other companies in the form of a cover or "excuse" to raise their prices simply to improve margins. "If these companies can raise their prices why can't I?" would be a component of that logic. Kingsford Charcoal* tried this but it backfired - mainly b/c there were other alternative charcoal companies that didn't raise their prices.
Over the 10+ years on HN the one thing I have learned is that vast majority of tech people simply have no idea how commodities works. I would have thought 2020 with Toilet Paper roll would teach them a much needed lesson, but other than the constantly repeated bullwhip effect it doesn't seems much have changed.
Free market theory is useful for getting general ideas for how doing X or Y might affect the economy, but once you're talking about the actual economy made up of actual people, you need to forget it, because "free markets" that actually follow those simple rules directly are effectively nonexistent.
In this case, you don't even have to go so far as to say the theory is wrong, because it lays out certain conditions for what can be considered a "free market", and elastic demand is one of those.
> they couldn't raise prices in the past because people would get too mad at them
They didn't raise prices before because they believed people would get too mad and they'd lose money.
Due to a fairly complex combination of factors, that's no longer true.
Some of those factors are the increased consolidation of nearly every part of our economy, meaning that there are vastly fewer players in a given sector that would have to defect in order for this to stick; the (relatively speaking) massive levels of political and economic turmoil the US (and the Western world more generally) has suffered over the past several years, leaving people much more numb to stuff like this, at least in the short term; and the number of people willing to sit there and justify their actions for any of a wide variety of reasons. (And yes; the supply shocks of the pandemic that actually justified raising prices are a major factor, and were clearly the trigger for this—the thing that either gave them the idea, or showed them that it might work.)
Demand for cheerios is elastic- people can substitute by buying oatmeal. Demand for salmon fillets is elastic- people can substitute by buying tuna, beef, beans, tofu, etc.... for just about any given food item there are substitutes to provide similar high quality nutrition.
You are simplifying too much by saying demand for food is inelastic. It's true that people consume roughly the same amount of calories every day. However, Grocery stores are a low-margin business. Your grocery store is in constant negotiations with suppliers that vary from local produce farmers to General Mills to Anhauser-Busch. Some suppliers may be making high margins.
The idea that increased consolidation has caused this inflation has to compete with other ideas- such as:
The productive output of all sorts of businesses decreased during the pandemic at a time when the money supply increased. There were more dollars chasing fewer goods. As the pandemic eased off, the productive output was able to climb back to capacity, but money supply increases (and lagging effects of reduced inventory of goods) remained in effect.
In a time where there is less production, the production that remains is more valued. Margins would tend to increase in this environment.
How do you prove that the consolidation effect is more relevant than the macroeconomic picture?
> Demand for cheerios is elastic- people can substitute by buying oatmeal. Demand for salmon fillets is elastic- people can substitute by buying tuna, beef, beans, tofu, etc.... for just about any given food item there are substitutes to provide similar high quality nutrition.
This would be a good argument but I feel it’s undermined by the heavy consolidation in the food market, no? If the same company is selling each product, then it doesn’t matter as much if a consumer switches between them
I agree with the rest of what you said. I certainly don’t know how to prove which is more relevant but I believe the supply shock and excess money played the largest role, however I think it’s wrong to dismiss either as both seem to be at play.
It matters even in a Consolidated Market. The cost of a thousand calories of steak is different than the cost of a thousand calories of dried beans.
Just because the cost of dry beans has gone up 10% doesn't mean that you can't save money by eating them instead of beef.
If customers don't switch to beans despite high prices for steak, it tells you something about the demand for beef relative to the cost sensitivity of customers.
Ah, yes: because people who have limited disposable income were making up most of their calories with steaks...and because everyone who was buying steaks will be going aaaaalll the way to replacing them with dried beans.
Rather than people with limited disposable income already buying cheaper foods, and when those get more expensive, just having to buy less.
And, once again, for many, many things, the company that sells the steaks is owned by the same conglomerate as the company that sells the beans, and they're raising the prices in lockstep.
And demand is inelastic because customers have enough money to pay for more expensive Goods before switching to cheaper substitutes.
People aren't buying beans instead of steak because they really want the steak and can still afford it. The price of steak will only go down if people are no longer willing to buy it.
Are you saying that there's insufficient supply for some reason other than consolidation? I can think of many reasons, but they all share consolidation as a common factor when tracing back to the root causes.
There are tons of reasons just in the last few years that I don't believe have anything to do with corporate consolidation: the war in Ukraine, the rise and fall of the pandemic causing rapid unexpected swings in consumer spending patterns in a wide variety of ways, healthcare workers burning out and quitting (resulting in more pressure and burnout in remaining workers), factory shutdowns overseas affecting chip supplies (affecting supplies of cars, among other things), a bad bird flu season drastically reducing supply of eggs, etc. etc.
I could go on. I agree consolidation is a problem, but it's certainly not the only one.
The argument is that consolidation (and various neoliberal stalwarts e.g. Larry Summers) are the reason these companies are getting away with it. If the market were more diverse, you wouldn't have confident oligopolies raising prices with impunity.
I would add on class warfare. There's not really any such thing as corporation vs corporation anymore, it's class warfare with capital vs not, and capital knows it. All the X companies just raise prices uniformly because why would anyone not do it and ruin the party?
Okay, so when the bird flu hit and suddenly there were way less eggs to go around, what if companies had kept egg prices exactly the same? The result of that would be that all the eggs would sell out and we'd have empty shelves, since there literally weren't enough eggs to go around.
But that didn't happen. Eggs became more scarce, and therefore more valuable, and thus prices universally went up. People who still wanted eggs badly enough and could afford the high prices paid a premium for them. Other people bought and ate something else instead.
And then when the supply came back up, egg prices came back down. This is how the system is supposed to work, and it's exactly what I would expect to happen in a situation like this.
You're saying you really think that whole story had nothing to do with supply constraints, and it's all a big corporate class warfare price fixing conspiracy?
Actually, what you're describing pretty much did happen in the UK (which is where this blog post comes from). British supermarkets are generally less willing to raise prices than elsewhere in the world and certainly didn't increase egg prices to anything like the levels seen in the USA. As a result, during the rough time period where the US had really high egg prices, the UK had egg prices that were more or less normal but the shelves were usually empty.
> Okay, so when the bird flu hit and suddenly there were way less eggs to go around, what if companies had kept egg prices exactly the same? The result of that would be that all the eggs would sell out and we'd have empty shelves, since there literally weren't enough eggs to go around.
> But that didn't happen. Eggs became more scarce, and therefore more valuable, and thus prices universally went up. People who still wanted eggs badly enough and could afford the high prices paid a premium for them. Other people bought and ate something else instead.
So the egg supply went down. Yes, you'd expect to see empty shelves, because there were fewer eggs to buy, and they're useful. Instead what we saw were shelves as full as before, because of prices went up. What that means is, people were already buying fewer eggs, because the supply was so much lower, but because of prices going up, people bought even fewer than that. There were a shortage of eggs, and yet because of prices being raised, they couldn't even sell through on the eggs they had.
How much of the reduction in egg consumption was due to reduced supply, and how much was due to raised prices? No idea.
What would I expect to see? If the egg supply dropped precipitously, I'd expect a company which makes their money selling eggs to make less money. Or raise prices so that they make the same amount of money. Instead, they raised prices so they made way, way more money.
In my experience the vast majority of people have very few root values that they won’t betray for a little more pleasure or power.
People very quickly adopt a “if you can’t beat them join them” attitude when facing resistance or throw their hands up and say “I’m just trying to live” or “that’s not my problem” when encountering a moral dilemma.
So no wonder that when faced with a moral dilemma most people put themselves in the position to say “I can see myself doing that and wouldn’t want to feel judged for it, so I’ll defend the practice because maybe I’ll need to do that later.”
I’m trying to figure out how to build the structure of society to promote the opposite of that - to make it trivially easy to say no to unethical behavior instead of just going along with the crowd. I’m coming up short with how to do that.
Part of the problem is that most human beings are fairly wired through various selection criteria and conditioning to accept even maladaptive behaviors through mimetics. The people that seem to quickly go against societal rules for whatever reasons they may be tend to be viewed as "anti-social" and quickly judged harshly by at least roughly 40% of the population at large. After all, "criminal" behavior and "protest" is mostly distinguished in terms of defining the current social contract as not valid or inconsistent and how many people overall agree, not whether something is simply written down and codified.
A lot of the people who quickly go against societal rules are anti-social, so the stereotype is not undeserved. The two primary personality types are "always-go-with-the-herd" and "always-go-against-the-herd", it takes a lot of attention to detail and strong will to only buck the trends that are actually bad; so nuanced rule-cutters are pretty rare and easily lumped into the anti-social camp by the common rule-followers...
Concur completely. Having the capacity to differentiate or make an explicit distinction for why one set of actions is preferable over the other in any type of way that has a epistemological grounding, is not something the vast majority people have the time, patience, training, personality type, etc. to be able to do.
So then we have a problem don’t we? Either the expectation is that some plurality of humans have the ability to coherently manage this kind of epistemological chain reasoning. Or it is untenable for that level of coherency to be able to drive functional assumptions that are generalizable across all human communities.
And us, we’re back to where all moral philosophers have always gotten stuck, which is to say, we have no objective epistemological grounding for any particular type of moral reasoning chain - making every single, moral debate impossible to agree on generalized first principles.
So how do you structure society in a way such that the default behaviors diffuse power and increase pro social responsibility, given the fact that the current social structures demonstrate infinite examples of anti-social behaviors leading to power and wealth.
That is to say, how do you create a society where nobody even wants to be a millionaire because that level of relative over-consumption relative to others would just feel too bad.
There is a huge difference between the arguments I'm seeing for large groups of people disagreeing completely upon what people have control over, which very quickly devolves into what control and rules we should exert upon others. There seem to be thankfully some general ideas about consent that seem pretty obvious like for the most part people don't want to be murdered and dismembered, but the hardest part of the human species IMO is basically cat herding - how do we get collective action performed when both its strengths for evolution (ability to splinter off and form separate groups) is precisely the evolutionary biases that keeps it from achieving higher aggregate functions as a species.
It seems kind of unfathomable to me how people do not understand that privatized tyranny is still tyranny by a system that is socially reinforced - it doesn't have to be a government that does it whatsoever and the general rules of power kind of matters more for first principles than some arbitrary definition of "capitalism" or "socialism" or whatnot that may be irrelevant in another thousand years. It's always been about how to organize collective actions compatible with the context of human social development.
In my experience the vast majority of people do not understand how monetary policy affects inflation. People very quickly adopt a “if you see prices rising, it's corporate greed" attitude when facing resistance or throw their hands up and say “We need price controls and limits on corporate profits."
Economists don’t even know how monetary policy affects inflation if for no other reason than because they can’t predict forward demand and exogenous supply shocks are always random.
This is why nobody called the effects of QE I and II correctly - if you recall it was supposed to cause widespread hyperinflation overnight when it was unwound.
Welp that was totally wrong because the financial system isn’t some deterministic mathematical function. It’s a political and human organization that will twist itself into doing whatever it needs to do to maintain the current power structure - up to and including breaking any rule that Mises, Rothbard or Jefferson could think of that would restrain the use of signoriage as political power.
"if you recall it was supposed to cause widespread hyperinflation overnight when it was unwound"
According to which economists? Did you ignore the economists who vouched for them and said they wouldn't lead to hyperinflation? Regardless, inflation did happen because of QE I and II but it wasn't hyperinflation as many economists predicted beforehand.
Basically the fact that Google, Facebook, Twitter blew up in user growth during the start of QE lead to all the QE money going into startup/tech investments rather than inflating commodities.
You name and shame them, the louder the better. Most people don't want to be, you know, known for being a snake (if nothing else, it removes their ability to virtue signal at a later date).
Of course you don't get to do this without some amount of risk of retaliation and collateral damage. But there is no conflict averse solution. The problem with the "structure" of society is that it has become too conflict averse.
Unfortunately at some point you gotta live. Fighting the fight for morality and tye such is great. But you also need to have an enjoyable life. At some point you realize the massive qol you get from being morally flexible even a little. It's pragmatic.
It sucks. It feels bad. But in the end it may be the only option you have.
Living with integrity brings about the most robust and beautiful experiences I've ever had. Significantly more happiness in this state than with a lot of money and all the things most people lie and cheat to have, and while I have never lied and cheated (much), my priorities were different.
Try living for a year where you don't care about money, you volunteer your time for people, and you operate in service -- where everything you build is purely for others, every encounter is a genuine exploration and interest in others, and service is rooted in a desire to uplift people. This is the opposite of most conventional action rooted in trying to take as much money from everyone as possible, or "what can you do for ME?"
If you lived without a care for money, focused on discovering yourself and living in service of your fell kind, you will enter in an unimaginable abundance and thrive beyond anything you'd dream. That is living.
When you are on your deathbed someday, I wonder if you'll have a wish like "I wish I worked even harder and made even more money." You might be the only one ever in mankind's history if so!
I am not sure most people think that far ahead. I think a lot of it comes down identity. People start identifying with "free market capitalism / freedom" (whatever that is) and then you try to rationalize their thinking / support / actions around that.
Wait a second, tech stocks are down like crazy for most of us. Fat good that did for us all as employees. Clearly raising interest rates isn't the kind of silver bullet that economists hoped it'd be.
My favorite part is that MMT advocates (like the author) were arguing for years "we should borrow and spend like there is no tomorrow, deficits don't matter as long as inflation is low". And now when it's suddenly not low they are like "nah, we should not do anything about it, inflation will go down anyway somehow, it won't become embedded, trust me".
All the HN threads on this have people arguing from first principles about why this is impossible while all the CEOs are like, “LOL look at what we’re getting away with.” Textbook example of why business schools and economics are generally separate departments.
There are two "fixed views" that will come up here, regardless of evidence for or against:
- hardcore monetarists who think that inflation is always and only a monetary phenomenon
- hardcore Efficient Market Hypothesis believers who think that all markets are always perfectly efficient, so therefore all companies are always already charging profit-maximising prices
(These come up every single time and are immune to evidence. Also a bunch of people are going to ignore the UK and Euro qualifiers of the OP article and talk about US inflation)
Personally I'd like to offer a couple of extra lines of inquiry: labour market tightening due to COVID losses, and the impact of huge natural gas price spikes in Europe due to the war. See the IMF quote in OP:
> "Rising corporate profits account for almost half the increase in Europe's inflation over the past two years as companies increased prices by more than spiking costs of imported energy. Now that workers are pushing for pay rises to recoup lost purchasing power"
That presents a proposed mechanism for actual price changes ("menu reprinting" in economics jargon). Energy spike forces price rises -> once you're changing the prices, makes sense to change them by more than you need -> wages less elastic than consumer spending -> increased profits because prices have gone up faster than wage bills AND energy prices have now come down again.
…sure, but this is essentially the same thing as greedflation. An exogenous shock created the circumstances for a price increase, but instead of restabilizing relative to inputs, companies decided (arguably conspired) to set this as a new price floor. And because of a lack of government regulation around monopolies and collusion, are getting away with doing so.
Did you read your own article? Kroger and Albertsons have not merged so "inflation" would not apply to this non existent merger. Even if they did merge their market would still be around 10-12% which is far from a monopoly.
I have Costco, Walmart, Safeway, food Co, grocery outlet, and TJs within 5 min of my house. Why are my prices inflated where I live if monopoly is the cause
"In 43 metropolitan areas and 160 smaller markets, Walmart captures 50 percent or more of grocery sales. In 38 of these regions, Walmart’s share of the grocery market is 70 percent or more."
This is such an awful argument. Because a company captures 50% of sales in an area does not mean that it has a monopoly and that there is only 1 grocer in the area. Your source is also not very reliable. List one area where Walmart has a monopoly and the only grocer in town.
A business doesn't need to be the literal only option for it to have monopolistic power over a market.
The Sherman Anti-Trust Act uses 50% market share as a general criteria for when a business could have monopoly power in a market. Based on that definition, here's an answer for your
> List one area where Walmart has a monopoly
Check out the table in the back of the source I linked, and you'll find 203 of them!
You have continually been provided sources and then brushed them off. If those didn’t pique your curiosity to look into it more, and there are more Google results for “Walmart monopoly”, nothing will. Just admit you have an axe to grind and that you won’t change your mind and move on.
That says 4 companies control 65% of the retail market. That is not a monopoly and there are many other grocers that consumers can shop at, like Amazon, Whole Foods, Safeway. Trader Joe's or the many other regional specialty ones.
> meanwhile the companies themselves are bragging about raising prices just because they can. In their own earnings reports.
What's a good example where a company is bragging about raising prices?
Regardless of tone, increasing profits is what is demanded by shareholders and given that 61% of Americans own stocks, I don't see how you break out of that loop.
You can’t raise prices in a vacuum. If the market has adequate competition, then raising prices will lead to a loss in sales as customers go to other businesses. With consolidation, which GP mentioned, there isn’t enough competition to keep prices down.
Several commenters like yourself have commented on consolidation without giving a clear example. Which consolidations have happened that caused the inflation?
A typical example is a merge underway right now: Kroger and Albertsons are trying to merge. Apparently the CEO of Kroger has been quoted on a call as saying "We view a little bit of inflation as always good in our business." Albertsons is owned by a private equity (PE) firm Cerberus Capital Management. Another example is PE firms buying and merging veterinaries to reduce competition in the market [0]. Yet another example is PE firms buying up over half of the air ambulance Medicare market and jacking up prices [1]. This type of behavior is PE's bread and butter. There are thousands of examples.
In addition to private equity, there are also conflicts of interest from index funds. Institutional investors own over 80% of the S&P 500. Vanguard and BlackRock are the two largest shareholders of a majority of S&P 500 companies. This means BlackRock and Vanguard are the largest shareholder of American and United airlines. Some question whether or not this is also leading to higher prices [2].
Okay, so Kroger and Albertsons have not merged. Why are you blaming current inflation on a merger that doesn't exist?
Those industries you named are far from consolidated. The largest veterinarian (VCA) owns 20% market share. The largest air ambulance one owns 30% (Air Methods). The largest general ambulance service (Envision) owns just 10%.
You don't consider two PE firms controlling 64% of the market to be consolidated? Here is a history of mergers in the air ambulance space [0]:
> In 2010, Bain Capital bought Air Medical Group Holdings for $1 billion, only to sell it five years later for double that amount to KKR, which, in turn, merged the company with yet another air-ambulance provider, American Medical Response, under the name Global Medical Response. (Tracking this shell game can be dizzying. In the three years between Hoechlin’s air-ambulance flight and mine, Guardian Flight merged with REACH Air Medical Services; both are owned by Global Medical Response.) In 2017, American Securities drastically accelerated private equity’s takeover of the air-ambulance industry with its $2.5 billion purchase of Air Methods, the largest domestic provider of air ambulances. (In 2016, during its final year as a publicly traded company, Air Methods posted a $97.9 million profit on $1.17 billion in revenue, and the year before had paid its CEO $2.5 million in direct compensation, including stock options.) That purchase established the industry’s current landscape, in which two private-equity firms, American Securities and KKR, control almost two-thirds of the national market for air ambulances, according to Medicare data.
Also, regarding the vets, JAB bought emergency vet services in specifically target geographic locations to control the market for emergency vet services in those areas. They control a tiny portion of the overall market, but their consolidation still allows for higher prices in the regions they operate in.
Coupled with making sure that (in appropriate industries) regulations are sufficient to allow new entrants. It's not necessarily bad if it costs hundreds of millions or billions to start a pharmaceutical research firm. It shouldn't cost half a million to start a bakery, for example.
Here we go again. Another case is of if you say it enough it must be true.
Meanwhile drive by a mall or go to a store. They are packed. Lines are ling and people are falling over them selfs to buy stuff.
Cars. While recovering, are still hard to find. When dealerships have shortages they do massive markups. Lets are sold but huge profits per car. This price action is due to demand, bulls have to be paid.
Yet you totally ignore the masses of money injected into the economy. Hell we still have areas in CA where eviction is still banned and people are just living rent free.
There is just too much day to day evidence to consider your statement that gave zero examples as good faith arguments.
Next up. Replies replies showing a one off case of profit as status quo.
Do not assume that because someone has expensive things that they also have a lot of cash and no debt.
> When dealerships have shortages they do massive markups. Lets are sold but huge profits per car.
If price increases are due to supply constraints profits should equalize, not increase (This is called price elasticity). People need cars and manufactures are taking advantage of that fact. The demand (actually absolute need) for a car make the price extremely inelastic.
I don’t really understand the argument that corporate profits are driving inflation. If demand for a product goes up, we would naturally expect prices to rise since there is more competition for a fixed set of goods. Since the cost of producing the product has not increased, corporate profits necessarily rise. In the long term, we would expect competition to drive prices back to marginal cost as production of that product increases, but this process can takes time.
In this case, how do you separate inflation due to increased demand from inflation due to corporate profits? The two seem inextricably tied to me.
You can't compare prices and profits. Increased demand and short supply can cause prices to rise. Prices. Not Profits. Profits are typically after costs of selling goods/services. If pandemic caused various factors to cost a lot more and that cost was passed onto consumers at a similar rate as in the past then profits should remain same-ish. Its possible and logical that companies raised prices during the pandemic due to some cost increase (parts, shipping, etc.) and then never lowered prices even though that cost increase faded away.
If over a long period of time there has been consolidation (aka acquisitions) in an industry and there are only a few conglomerates around, they essentially have a market to themselves and can do what they want without actually legally being considered a monopoly.
people seem to think there is a corporate generosity/corporate greed cycle, where sometimes they get greedy and push the prices up and other times they feel generous and lower the prices for no reason.
If people would pay more they'd already have set the prices higher...these quangos commenting on it have clearly lowered the quality of their academic hires if they're willing to publish garbage like the article above and the imf's recent piece.
You can look at plenty of markets where there is no increased demand. Food is an obvious one. Also as other people have pointed out, it's not like they're hiding it.
The price of a pound of oats at the regular grocery store has trebled over the last year to 5.00/lb. Meanwhile if you buy them in 25 lb bags at Cash and Carry they’re less than 80 cents a pound. Someone is gouging like crazy.
The producer price index in the US was at 118 in 2020. It shot up to 140.72. In the US that corresponds to the producer having less purchasing power which directly ties into our consumer price index and the raw costs of goods. At one point the producer-side inflation was WORSE. Businesses were loosing their asses in the US. it wasn't "price gouging".
Food is down 20-40% over last year and the only thing still propping it up as much as it is surrounds concern over the US midwest drought. Indeed, consumer buying lags production, but it is only a matter of time.
In the UK, it feels like food is up 25-50% over a mere couple of years.
Items that were £2 not so long ago are now rounded up to £3 in some cases.
It doesn't help that supermarkets are constantly playing games with pricing, trying to get people into the store with seemingly good deals that never last long, then experimenting with just how far they can push the greedflation on other items.
We need a measure of inflation that's based on the cost of essentials, primarily housing, energy, transport, and food - rather than stacking the 'basket of goods' with infrequent purchases that we expect to fall in price.
Food prices are definitely still up 50%+ over 2019, but down from last year. Concerns over the conflict in Ukraine sent things to the moon for a little while. I expect there is still some fertilizer concern out there, but it is mostly the weather driving things right now.
We are talking about food, not groceries. As before, there is a lag between them. The consumer is still largely paying out last year's food contracts at the high prices. We likely won't see grocery prices come down until next year.
There is increased demand/prices for the inputs, and decreased supply for some of them. "Increased demand" doesn't just mean increased demand for the end product.
> If the headline read consumers now willing to pay twice the price it wouldn't have the same clickbait value
that's not how it works though. Inflation affects a lot of goods where you have no choice, you just need it (e.g. food, utilities, housing, transportation).
Almost all good have a sliding scale for quality and how much you consume. It's not pretty or Pleasant but it's possible. I don't want to in any way sugar coat it, but it's possible. For example people don't need meat or eggs to have a subsistence diet. The fact that they continue to buy those goods at a higher price demonstrates that they are both willing and capable of paying that price before switching to something cheaper like rice and beans
Because the corporations are saying it is an increase in costs that are driving higher prices, not demand. And the price curve for things like "eggs" is not being driven by demand.
I have a hard time believing this is supply-side inflation. Are they saying that multi-national corporations are inflating their own prices so-as to invoke cost-push inflation so that they can profit on the back-end? If that's what the EU is saying (which is what you're implying) than they're insane conspiracy theorists. markets aren't centrally planned processes, especially markets as complex as the EU's. Chances are it's demand side inflation, which is exactly what the US has. The US had a massive recession in 2007 and they inundated corporations with bailouts yet this did nothing to spike inflation. When the US pumped trillions of active currency into the economy they triggered demand-side inflation (https://www.bloomberg.com/news/articles/2022-08-24/demand-su...). How is the EU any different? They too pumped excessive amounts of currency into their markets (https://www.consilium.europa.eu/en/policies/coronavirus/covi...).
> markets aren't centrally planned processes, especially markets as complex as the EU's.
It could be when all the brands are owned by a couple of corporations, which are chaired by a couple of large investment firms.
You know for a fact that big tech was doing a no poaching agreement in 2005, but can't wrap your head around the fact that corporations can collude on a price hikes in 2023?
You picked just about the worst example to make your case. Egg prices Spiked to huge numbers because of large culls of egg laying hens then fell back down. They didn't fall all the way back down because customers are now willing to pay higher prices
no don't you understand, the egg producers just became more greedy for a bit and raked in extra profits, then decided to become less greedy! Get out of here with your important context!
Right, and the very next sentence (after the infographic) is: "Wages have driven only a small part of inflation in Europe. I also suspect that is true here too."
So the body of the article only talks about EU data but then he "suspects" it applies similarly to the UK by putting it in the headline, without drawing any actual connection with data.
If companies can just increase prices at will and drive inflation this way, why weren't doing that before overwhelmingly? Why stop at any price? Why don't eggs cost 100 pounds for a dozen, they would have amazing profits if they charged this much.
Maybe the unprecedented, recent regime of low interest and money printing have something to do with this? Hmmmmm...
BTW, the government LOVES the narrative that evil corporations are creating problems and the government itself is innocent of any wrongdoing. So we will keep hearing this (not the first time on HN).
Companies have a coordination problem when applying this strategy. There was a week in early '22 when the major media outlets all shifted from "the economy is struggling" one day to "inflation is a major concern" the next. This provided the necessary synchronization point and public acceptance that rising prices had a cause.
But synchronization alone can't account for everything. The pricing variability that the public has grown accustomed to, starting with the pandemic, has opened people's minds to be less reliant on price stickiness. TP is up this month, bread the next, eggs the next, is great cover and pretext to everything is now pricier.
A couple of caveats: (1) The supply chain and risk landscapes have changed, and my anecdotal sense is that companies need larger margins to compensate. (2) Competition will generally keep abnormal profits in check. If your competitors raise prices and underpay workers, there is nothing stopping you from keeping your own prices lower and increase the wages you pay to attract the people you need and increase your own sales and profits. If companies don't do that, you need to at least contemplate why not.
Companies being greedy and attempting to maximize their profits is a totally new thing. Up until recently, companies were all about being great to employees and saving their customers money.
> Companies being greedy and attempting to maximize their profits is a totally new thing. Up until recently, companies were all about being great to employees and saving their customers money.
Depends on what timeframe you consider the OP sees as "new thing". Reaganomics really was the start of this trend though I'm sure it is easy to find examples prior to then looking back until the Great Depression.
I'd love to know what products you're imagining when you make that statement. I work in manufactured goods, and there's massive start up costs when it comes to machinery, human capital, logistics, everything.
You might be able to fill out some forms online to "start a company", but the actual process to get a physical product into the hands of a customer is wildly difficult these days - and that doesn't even consider the fact that you're often fighting a losing battle against Amazon and Chinese counterfeiters right from the get-go.
Plot twist: Corporations raised prices because there was extra liquidity that they can capture. If the money printing didn't happen, these raises couldn't happen too (because there will be no supply of money to satisfy them).
I'm actually thinking it's not a twisted plot. Companies went ahead of the curve. Instead of waiting for the inflation-induced by printing, and gradually raising prices, they went avant-garde and raised prices accordingly.
You are (were) an idiot if you didn't raise prices.
Everyone (all people, corporations, government, ngos, etc) are driving it. The question is not and has never been what is driving/causing inflation.
The question, previously and now, is who will suffer to reduce it?
The answer is working people.
Because they are the ones least able to protect themselves. We could stop it by inflicting pain on non-working people or billionaires or corporations or a few other groups. But working people have the least political clout, the least sympathy, the least political clout and the least ability to just opt out (go abroad etc).
I've looked at quite a few quarterly reports by large corporations and I see the same pattern everywhere:
Nominal sales up by ~10%, cost of goods sold up by ~20%, profit up by low single digit percent. In other words they are driving towards a cliff and the last 2 quarters of this year we will probably see losses.
But yes, it has to be those damn greedy corporations, it couldn't possibly have anything to do with shutting down global supply chains while increasing and radically shifting consumer demand.
> From a more general perspective, our paper is loosely linked to the strand of literature which analyzes profitability and market power using firm-level data (e.g., De Loecker et al (2020), Davis et al (2022)) but we focus on national account data. [1]
Thanks for the deep link, the other one sent me on an infinite redirect loop.
It is still puzzling to me, since they have "Trade, Travel, Accom. and Food" with the highest profit contribution in figure 2. However if you look at the quarterlies of Nestel, P&G and others their profits are increasing by low single-digit % if at all.
Or the war in Ukraine, or international derisking/decoupling or whatever they want to call it after last week. Or the bankruptcies caused by the shutdowns/inflation/subsidization of specific business while letting others fail, and market consolidation which that causes, which itself leads to new and bigger monopolies, and monopsonies, and therefore less elastic prices as competition is removed.
Oh I thought inflation really was companies increasing their profit margins, the Russian attack on Ukraine, Brexit and Taylor Swift's and Beyonce's concerts. Well, basically everything except for central banks printing shitloads of money. /s
addition: Fortunately it seems even central bankers are coming to terms with this:
"Agustin Carstens, head of the Bank for International Settlements (BIS), said that governments and central banks went too far in dishing out cash during Covid."
https://www.telegraph.co.uk/business/2023/06/26/britain-infl...
“I stress, this is the euro area. It does not change my suggestion on the role of interest rates, which are a peculiarly UK phenomenon.”
A strange remark. I understand that the ECB interest rate is a little behind the curve but I don't see how that renders "interest rates...a peculiarly UK phenomenon". They're rising everywhere, and are higher than they have been since the financial crisis, and the BoE's 5% is less than the USA and many other countries.
Yes, they do. It's called supply and demand. Those profits should drive competition. If they don't maybe let's have a look at what is preventing new competitors from entering the market?
Nominal GDP, real GDP, personal income, and government tax receipts are all macroeconomically tracked stats. Subtract out taxes and personal income from nominal GDP and you have profits.
There's an identity where nominal GDP = real GDP * GDP deflator%, where the GDP deflator is a measure of inflation that also includes exports.
The calculation I described is basically just computing the components of GDP through the income approach, GDP = wages + rent + interest + net imports + taxes + profits. Then you do this for both nominal and real GDP. The ratio between them is inflation within each factor of production. A weighted sum of these individual inflation rates should give back the overall GDP deflator; comparing the contribution of an individual factor of production's term vs. the overall inflation number gives the percentage of inflation due to a particular factor of production.
This is total nonsense. Read Basic Economics by Thomas Sowell.
In a free market companies that are making large profits quickly find themselves with competitors. People that do a better job cheaper are the winners.
Eventually a balance happens when several companies are making minimal profit.
Breakdowns occur when government interfere and let certain companies get an unfair advantage. Usually high regulation requirements that only certain companies can met.
Inflation is happening because the government is printing money like crazy. Same reason it happens all counties where money isn’t worth paper it’s printed on.
Your argument is more soapboxing than an effective refutation of the complaint. You agree inflation is happening. You agree that large-profit companies are profiting largely. Thus, you agree with the factual basis of the complaint.
Let us know when that Amazon competitor comes along.
Inflation is too many dollars chasing too few goods. If the ECB/US Federal Reserve/Bank of Japan would turn their printers off the inflation cycle would naturally work itself out.
I have my own issues with MMT, but I feel like most people that share your position seem to believe that MMT means “you can print as much money as possible without ramifications” which is not correct. One of the core ideas of MMT is that inflation is the limiting factor of how much money can be printed, or rather that inflation should be the gauge of when to stop. The idea is to spend new money wisely, in ways that increase productivity rather than contribute to inflation. I think that part of MMT is quite reasonable.
Every economic theory will be employed in the worst ways possible, so in practice the `printer go brrrrr` is what happens.
Anecdotally - one of the primary reasons of why I left academia (economics specifically) is that the theory never matched the practice. I should have stayed in engineering.
Dumb question: wouldn't increased corporate profits be an anti-inflationary measure longer-term due to decreased monetary velocity resulting in less effective money in the economy? Lower strata spend a higher percentage of their money than higher ones, thus making money higher velocity.
The statement in the title is usually a clear indicator that someone (willfully or otherwise) doesn't understand inflation.
Nominal profits are higher when inflation is higher. You have to take into account inflation when measuring profits. Sure, some companies have an increased profit margin when adjusted for inflation, others don't. And there's the cantillion effect, those upstream on the debasement pipeline do profit from inflation.
About the only exception to this is that when prices do go up, if production costs come back down companies very rarely bring prices back down, they acknowledge that people see a new normal and then pocket the difference.
This is propaganda, trying to explain current conditions in a way to fit their preferred narrative. This is like claiming that if you sneeze that causes you to get a cold.
I'd tend to think the massive government stimulus during Covid has something to do with it.
But as for corporate profits-- no troubles. We all have the opportunity to be corporate owners. As profits rise, stock returns rise. It's a vital part of a diversified portfolio.
Paul Graham was belittling people on Twitter for suggesting that corporations are partly responsible for the inflation problem. I respect him a lot but I was shocked to see that he is unable to this point.
I mean both (profits/water vapor) are indeed powerful but only mere amplifiers of underlying causes in both phenomena.
BTW it's a shame MMT-ers rebranded themselves into greedflation folk and stopped promoting their painful but effective solution to inflation: raising taxes.
You mean inflation adjusted profits? Profit margins adjusted for inflation will likely be about the same.
The issue with inflation is one of expectation (trust me, I'm an experienced Argentinian) and usually government triggered a long time before any of its effects are noticed.
There is some lag on the cause-effect chain and most people are rational about making their pricing decisions. Price fixing doesn't work and hasn't worked in ~1700 years so far (see https://en.wikipedia.org/wiki/Edict_on_Maximum_Prices ), I'm preemptive about this, because it's the next logical suggestion. It doesn't work.
Back to inflation.
It usually starts with a monetary phenomenon (e.g. stimulus checks, increased public spending, etc. or extra savings due to lockdown), that causes demand driven inflation once that extra money starts to circulate (there's supply driven inflation too, like the GPU card shortages, but that is easier to revert).
Essentially there is more money available than the economy really needs. So the money to goods+services balance is wrong, so money is worth less.
Remember, inflation is about the value of money, not the value of goods. Goods' "worth" are relatively stable (with some notable exceptions such as commodities).
This devaluation of money causes protective behaviors on a production chain, you start pricing your stuff based on the expected value of money (you typically think about the replacement cost of your raw materials and labor, etc. rather than money itself).
Since you're playing with the future, it's uncertain, so you play it safe, and add some extra margin to the prices just in case inflation gets worse.
See where this goes? This composes and tends to accelerate inflation. On pathological cases it ends up in an inflationary spiral that ends in full economic collapse (see https://es.wikipedia.org/wiki/Hiperinflaci%C3%B3n_argentina_... - Spanish only - )
Usually the best way to stop it is to just cause a recession by drying up all that extra money.
Once crap stops selling and the margins start to dry up, competition (on a healthy market) will drive prices down, but, again it will be slow.
The inflationary loop has lag, it takes a while to accelerate and it also takes a while to slow down.
It's scary to lower your prices when you expect high inflation, so once you turn the spiral on, slowing it down is painful for everyone, much more so for those of limited means.
I like the phrase: "Inflation is a tax on the poor" and is mostly monetary. The rich know how to protect themselves from it.
It's reached the point where even the IMF (which is really a policy arm of the US State Department) has to admit it [1].
To many (myself included) this has been entirely obvious for a year or more. The interesting part is how many apologists come out of the woodwork to defend capitalism when they are not part of this and they're just as much a victim as anyone else.
I think the biggest problem is that people confuse markets with capitalism. Markets are commerce. They happen in every economic system. It is not a unique trait to capitalism. Capitalism describes how value is created (labor) and how the surplus value of labor is concentrated into the hands of the very few (the capital-owning class) where once that wealth was concentrated into the hands of an artistocratic class that derived from the divine right of kings (ie feudalism). That's literally all it is.
We desperately need to increase corporate taxation.
If we increase corporate taxes, companies will respond by either raising prices, struggling to innovate/grow, or going out of business. Which of those outcomes do you prefer and why?
Corporations will continue to exist as long as there's a profit to be made. If they have to pay 10% of those profits in taxes or 80% they're still making money and there's still a profit incentive.
The idea that a tax on profits will drive a company out of business belies a fundamental misunderstanding at best or deliberate deception at worst.
In the 19th century the welfare of common people (in the industrializing countries) started to increase exponentially. Education, property ownership, economic activity, nutrition, energy availability and productivity absolutely exploded within a single generation. Many of the capitalists during that era were aristocrats of some sort, because they already had capital.
The rest of the old aristocracy felt threatened however, they could see that all these newly enfranchised and confident people would soon kick them out of their comfortable positions. So they started movements like the Labour movement (which protested city living/working conditions that were leagues better than peasants') and Socialism (which puts an aristocracy of party officials in charge).
Worst of all, they managed to somehow implant the idea that markets only work when severely constrained by suffocating regulations and dictates, which was extremely effective in killing small businesses. Really what we have now has very little to do with capitalism, how else would you explain the surge in things like stock buybacks which are essentially capital destruction (converting capital to paper valuation increases) or the insane growth of states towards 100% of GDP (which is decidedly not the most productive use of that capital).
Buybacks inflate the stock price, which increases the personal wealth of CEO, employees, board members. This is pure capitalism - after all, these people want to maximise their wealth.
Might you be assuming that capitalism and free markets reach some optimal state with respect to how broader society functions? This is not the case - free markets theoretically price some good or service at it's fair value to whoever would buy it. But it says nothing about optimising value across society (not to mention other measures of how well society is doing) because (a) things don't actually work out optimally (b) people don't really act rationally
On the one hand, the amount of money printing, pandemic stimulus, debt forgiveness, payment pauses, eviction moratoriums, increased the amount of money out there.
On the other hand, companies suddenly became far more greedy. Look at all my charts!
