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"With an additional million or two people out of work, the newly unemployed and their families would sharply cut back on spending, while for most people who are

"With an additional million or two people out of work, the newly unemployed and their families would sharply cut back on spending, while for most people who are still working, wage growth would flatline. When companies assume their labor costs are unlikely to rise, the theory goes, they will stop hiking prices. That, in turn, slows the growth in prices." That seems like a pretty whacky theory to me because it assumes that companies only increase prices when forced to do so, and not just because they can.

toomuchtodo 4y ago
It also doesn’t take into account 300k Boomers retiring per month. The Fed can’t print oil or housing, but it’s going to keep raising the benchmark rate while there’s a labor supply shortage. I am skeptical they can destroy jobs faster than workers take themselves out of the labor pool (through retirement and death), although driving down artificially high asset prices is a welcome result. Look at a population pyramid for the US, it’s plain as day.
NeverFade 4y ago
In a free market with healthy competition, a company can't just raise prices and increase its profit margins, because its competitors will keep their prices low and get all the business. Thus, indeed, companies can only afford to raise prices when all other companies in their space are forced to do the same, for instance due to rising labor costs.
- paulryanrogers 4y ago
  What portion of markets lack healthy competition?
paulryanrogers 4y ago
If companies cannot raise prices due to higher unemployment then it may be an effective, albeit cruel, strategy.
deeptote 4y ago
> That seems like a pretty whacky theory to me because it assumes that companies only increase prices when forced to do so, and not just because they can. It comes across especially wacky to me as price hikes have outstripped wage hikes. Considering wages and purchasing power has flatlined for workers, but productivity has greatly increased, seems like there's a lot of people getting fleeced.
refurb 4y ago
Their ability to raise prices is depending upon consumers having the money to spend.
econ101time 4y ago
>That seems like a pretty whacky theory to me because it assumes that companies only increase prices when forced to do so, and not just because they can. I see people post things like this, and I'm forced to conclude that you don't understand supply and demand. Edit: Sure, monopoly pricing is real. But blaming monopoly pricing for inflation is dubious. You'd need an account of 1) how the goods in the CPI basket are monopoly priced and 2) why all these monopolies decided to raise prices now instead of 3 or 10 years ago. The standard account is much more plausible: Supply side crunch due to covid policies and geopolitical problems and sanctions. Increased demand due to the Fed dropping money out of helicopters for over a decade + (more acutely) covid handouts.
- socialismisok 4y ago
  Supply and demand works on a idealized economy, but it's hardly true in the real world where there are cartels, monopolies, and other incentives to keep prices high even if there's supply.
  - deleted 4y ago
    [deleted]
  - mjhay 4y ago
    Supply and demand works great in Econ 101 though.
    - MereInterest 4y ago
      Correct, because Econ 101 is based on an idealized economy that doesn't match the real world.
      - SantalBlush 4y ago
        That's why you take Econ 102, which is an intro microeconomics course. It covers the different market types, like competitive, monopolistically competitive, duopolistic, and monopolistic, and it covers the concepts of positive and negative externalities, market failures, etc. A lot of people here are acting like these are foreign concepts to an econ curriculum, when they're completely rudimentary. It's just ignorance.
koheripbal 4y ago
Supply-Demand pricing is probably one of the most well studies aspects of modern economics. There is a range of prices between the underlying costs+overhead to the price point where demand drops off. In that range, several factors influence where a company sets its price. In a case where a company produces a unique product on the market, then it will price in the higher end of the range where demand drops off. On the other hand if multiple companies produce the identical product (a commodity market), then the competition all try to undercut the prices of one another and prices are more determined by the underlying input costs (such as labor and raw materials). Few companies product something COMPLETELY unique and irreplaceable for long until other companies copy them, but most try to differentiate themselves somehow to enable higher pricing without competition. They obviously also try to reduce overhead and negotiate lower input prices to gain a pricing advantage and capture more market share. Many companies exist in mature markets where commodity pricing dominates. In such cases, and in OPs case, the LACK of rising labor costs allow prices to remain low. Only on social media do people think that companies price things from a purely ethical/greed based model. Efficient pricing is just one aspect of running a successful company.
- vsareto 4y ago
  Shrinkflation is very real and illustrates that companies still have some agency based on profit/greed in determining prices.
  - econ101time 4y ago
    The alternative to shrinkflation is just raising the price (or raising it more). Yes, it's toying with sticky demand psychology, such that a plain price increase would produce a less favorable equilibrium for the seller, but I'd be surprised if it was a significant driver of inflation.
Aunche 4y ago
It sounds wacky because they're framing it in the worst possible light to generate populist outrage and get more clicks. The goal of raising interest rates is to contract the money supply because it would disincentivizing lending. Increasing unemployment is an unfortunate side effect, but clearly not their intention.
rufus_foreman 4y ago
Companies are increasing prices now. If they could have profitably increased them before, why did they wait until now?
- PaulDavisThe1st 4y ago
  Because genuine supply chain problem-induced price increases gave them cover to increase prices on things without supply chain problems. And also because in late 2020/early 2021, it appeared that labor was about to get a bit uppity and wee bit more powerful than it had been, so price increases were a nice preemptive move to deal with upcoming compensation issues.
  - pitaj 4y ago
    > Because genuine supply chain problem-induced price increases gave them cover to increase prices on things without supply chain problems. Or maybe the supply chain problems bubbled out to affect more and more things? Or maybe there was an actual general devaluing of the currency? Might want to employ a razor here. > And also because in late 2020/early 2021, it appeared that labor was about to get a bit uppity and wee bit more powerful than it had been, so price increases were a nice preemptive move to deal with upcoming compensation issues. This reads as "the cabal of big capital got together and decided to raise prices across the board because they were worried about labor power". You realize this makes you sound like a conspiracy theorist right?
    - PaulDavisThe1st 4y ago
      There's never any need for conspiracies or cabals when the interests of a given group are naturally aligned, and they are not large in numbers. Corporations can behave in their "own interest" and most times, they will find themselves acting in concert, without coordination. > Or maybe the supply chain problems bubbled out to affect more and more things? Shrinkflation is not explained by supply chain problems. My razor is that corporations will generally do whatever they believe they can get away with; "supply chain problems" gave them something approaching carte blanche to reprice anything they wanted.

toomuchtodo 4y ago

It also doesn’t take into account 300k Boomers retiring per month. The Fed can’t print oil or housing, but it’s going to keep raising the benchmark rate while there’s a labor supply shortage. I am skeptical they can destroy jobs faster than workers take themselves out of the labor pool (through retirement and death), although driving down artificially high asset prices is a welcome result. Look at a population pyramid for the US, it’s plain as day.

NeverFade 4y ago

In a free market with healthy competition, a company can't just raise prices and increase its profit margins, because its competitors will keep their prices low and get all the business. Thus, indeed, companies can only afford to raise prices when all other companies in their space are forced to do the same, for instance due to rising labor costs.

paulryanrogers 4y ago
What portion of markets lack healthy competition?

paulryanrogers 4y ago

If companies cannot raise prices due to higher unemployment then it may be an effective, albeit cruel, strategy.

deeptote 4y ago

> That seems like a pretty whacky theory to me because it assumes that companies only increase prices when forced to do so, and not just because they can. It comes across especially wacky to me as price hikes have outstripped wage hikes. Considering wages and purchasing power has flatlined for workers, but productivity has greatly increased, seems like there's a lot of people getting fleeced.

refurb 4y ago

Their ability to raise prices is depending upon consumers having the money to spend.

econ101time 4y ago

>That seems like a pretty whacky theory to me because it assumes that companies only increase prices when forced to do so, and not just because they can. I see people post things like this, and I'm forced to conclude that you don't understand supply and demand. Edit: Sure, monopoly pricing is real. But blaming monopoly pricing for inflation is dubious. You'd need an account of 1) how the goods in the CPI basket are monopoly priced and 2) why all these monopolies decided to raise prices now instead of 3 or 10 years ago. The standard account is much more plausible: Supply side crunch due to covid policies and geopolitical problems and sanctions. Increased demand due to the Fed dropping money out of helicopters for over a decade + (more acutely) covid handouts.

socialismisok 4y ago
Supply and demand works on a idealized economy, but it's hardly true in the real world where there are cartels, monopolies, and other incentives to keep prices high even if there's supply.
- deleted 4y ago
  [deleted]
- mjhay 4y ago
  Supply and demand works great in Econ 101 though.
  - MereInterest 4y ago
    Correct, because Econ 101 is based on an idealized economy that doesn't match the real world.
    - SantalBlush 4y ago
      That's why you take Econ 102, which is an intro microeconomics course. It covers the different market types, like competitive, monopolistically competitive, duopolistic, and monopolistic, and it covers the concepts of positive and negative externalities, market failures, etc. A lot of people here are acting like these are foreign concepts to an econ curriculum, when they're completely rudimentary. It's just ignorance.

koheripbal 4y ago

Supply-Demand pricing is probably one of the most well studies aspects of modern economics. There is a range of prices between the underlying costs+overhead to the price point where demand drops off. In that range, several factors influence where a company sets its price. In a case where a company produces a unique product on the market, then it will price in the higher end of the range where demand drops off. On the other hand if multiple companies produce the identical product (a commodity market), then the competition all try to undercut the prices of one another and prices are more determined by the underlying input costs (such as labor and raw materials). Few companies product something COMPLETELY unique and irreplaceable for long until other companies copy them, but most try to differentiate themselves somehow to enable higher pricing without competition. They obviously also try to reduce overhead and negotiate lower input prices to gain a pricing advantage and capture more market share. Many companies exist in mature markets where commodity pricing dominates. In such cases, and in OPs case, the LACK of rising labor costs allow prices to remain low. Only on social media do people think that companies price things from a purely ethical/greed based model. Efficient pricing is just one aspect of running a successful company.

vsareto 4y ago
Shrinkflation is very real and illustrates that companies still have some agency based on profit/greed in determining prices.
- econ101time 4y ago
  The alternative to shrinkflation is just raising the price (or raising it more). Yes, it's toying with sticky demand psychology, such that a plain price increase would produce a less favorable equilibrium for the seller, but I'd be surprised if it was a significant driver of inflation.

Aunche 4y ago

It sounds wacky because they're framing it in the worst possible light to generate populist outrage and get more clicks. The goal of raising interest rates is to contract the money supply because it would disincentivizing lending. Increasing unemployment is an unfortunate side effect, but clearly not their intention.

rufus_foreman 4y ago

Companies are increasing prices now. If they could have profitably increased them before, why did they wait until now?

PaulDavisThe1st 4y ago
Because genuine supply chain problem-induced price increases gave them cover to increase prices on things without supply chain problems. And also because in late 2020/early 2021, it appeared that labor was about to get a bit uppity and wee bit more powerful than it had been, so price increases were a nice preemptive move to deal with upcoming compensation issues.
- pitaj 4y ago
  > Because genuine supply chain problem-induced price increases gave them cover to increase prices on things without supply chain problems. Or maybe the supply chain problems bubbled out to affect more and more things? Or maybe there was an actual general devaluing of the currency? Might want to employ a razor here. > And also because in late 2020/early 2021, it appeared that labor was about to get a bit uppity and wee bit more powerful than it had been, so price increases were a nice preemptive move to deal with upcoming compensation issues. This reads as "the cabal of big capital got together and decided to raise prices across the board because they were worried about labor power". You realize this makes you sound like a conspiracy theorist right?
  - PaulDavisThe1st 4y ago
    There's never any need for conspiracies or cabals when the interests of a given group are naturally aligned, and they are not large in numbers. Corporations can behave in their "own interest" and most times, they will find themselves acting in concert, without coordination. > Or maybe the supply chain problems bubbled out to affect more and more things? Shrinkflation is not explained by supply chain problems. My razor is that corporations will generally do whatever they believe they can get away with; "supply chain problems" gave them something approaching carte blanche to reprice anything they wanted.