5 ms·

Labor costs point to corporate profit as main inflation driver

36 points by mhoad 4y ago

dehrmann 4y ago
> The continued drop in labor costs Odd way to start the article when later on > Earlier this week, Donavan said the slowing labor cost growth underscored “how little of the current inflation is labor related.” Not arguing with the overall premise, but labor costs are still going up.
- ydlr 4y ago
  It is _unit_ labor costs that are decreasing. In this case, because the price companies are getting for their goods is increasing faster than wages are growing.
rahimnathwani 4y ago
"private sector profits as a main driver of inflation" How can profits drive inflation. Profits have no form. They're just an accounting thing, a calculated value: the difference between revenue and costs.
- maria2 4y ago
  The article states plainly they mean margin expansion. Comments like this always perplex me. Did you read the article? If yes, what other possible interpretation is there? If no, why comment a question like this that would most likely be clarified in the article?
- vineyardmike 4y ago
  > How can profits drive inflation If every business decides to arbitrarily double their profit margin, then prices will rise, but none of that price rise goes to salaries, nor cost of materials, or anything else but a corporate bank account. This effectively drains money from consumers, without returning anything to them via salaries.
  - finspeech 4y ago
    Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, even if your assumption is granted, it would ultimately have no effect on consumers as a whole. So, assuming businesses are more profitable, they ultimately have 2 things they could do with that extra profit: 1. Hoard it and do nothing with it 2. Invest it In the case of 1, doing this is tantamount to taking money out of circulation (i.e. lowering supply). When the supply is lowered then everyone else’s purchasing power increases which is a benefit to them. In the case of 2, investing it, either by starting new businesses or loaning it, means that they are effectively redistributing that money to others in the form of wages. Which is beneficial to workers who also happen to be consumers.
    - ydlr 4y ago
      All of this is true is a company rises prices without affecting the behavior of others. When suppliers notice their customers raising prices, they raise prices to capture some of that increase. Likewise, workers will try to increase wages. The result is a profit-price spiral that gets misdiagnosed as wage-price spiral.
      - finspeech 4y ago
        I’ll grant this, but no matter what it’s called, ultimately no group (consumer vs. business) is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers What keeps this from happening, I think, is the presence of competition which would stop both cohorts, workers and businesses, from increasing their prices indefinitely
        vineyardmike 4y ago
        > ultimately no group is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers Except that wages tend to change less fluidly than prices so there’s usually a lag resulting in less purchasing power for consumers.
colechristensen 4y ago
Turn up prices when expenses rise, leave them up and profit when expenses fall. That’s it. Competition is inadequate and incentives don’t exist to price well.
refurb 4y ago
I can't tell what this article is saying. The first paragraph says "The continued drop in labor costs", but the Fed data says it hasn't dropped, it's been going up continuously.[1] The a later paragraph says "Since the labor share [of inflation] is declining" which entirely different than "drop in labor costs". So what's actually happening is labor costs are going up. They just aren't going up as fast as profits. Why can't they just write that? And the examples given "oil and gas" is an odd one, since profits vary wildly. When oil costs are down, profits are down. When oil costs go up, profits go way up. It's a capital intensive industry, and that's how it's paid for. Oil is never sold at some small profit margin. [1]https://fred.stlouisfed.org/graph/?id=ULCNFB https://fred.stlouisfed.org/graph/?id=ULCNFB,
anonreeeeplor 4y ago
This line of argument is utter nonsense and propaganda. Review the history of what happened. Covid landed. Then the federal reserve printed tons of money (shows up clearly in the percentage of government spending as share of US GDP and M2 money supply). Then there was a delay and then inflation began to increase. Inflation is always and everywhere a result of printing.
- rhaway84773 4y ago
  And yet the dollar is stronger than its ever been. And the inflation is global. In fact? The U.S. is faring better than most other countries. And inflation is even worse if you were using a deflationary currency like Bitcoin. The fact that someone can go through the last few years and see inflation clearly driven by war, inflation clearly driven by supply chain problems due to COVID, inflation clearly driven by Brexit when looking at the UK, and comment “inflation is always and everywhere a result of printing” is just ideological blinkerism at its finest.
  - gfdgfdsgfds 4y ago
    The “inflation is always and everywhere a result of printing” line is from a Nobel laureate in economics.
    - pasabagi 4y ago
      That is by no means incompatible with ideological blinkerism.
  - mountainriver 4y ago
    The big issue is that we significantly expanded the monetary supply while we had a supply chain shortages due to war/covid They aren’t in isolation, printing money when the supply chain is constrained is going to sky rocket demand, and send inflation through the roof

36 points by mhoad 4y ago

> The continued drop in labor costs Odd way to start the article when later on > Earlier this week, Donavan said the slowing labor cost growth underscored “how little of the current inflation is labor related.” Not arguing with the overall premise, but labor costs are still going up.

ydlr 4y ago
It is _unit_ labor costs that are decreasing. In this case, because the price companies are getting for their goods is increasing faster than wages are growing.

rahimnathwani 4y ago

"private sector profits as a main driver of inflation" How can profits drive inflation. Profits have no form. They're just an accounting thing, a calculated value: the difference between revenue and costs.

maria2 4y ago
The article states plainly they mean margin expansion. Comments like this always perplex me. Did you read the article? If yes, what other possible interpretation is there? If no, why comment a question like this that would most likely be clarified in the article?
vineyardmike 4y ago
> How can profits drive inflation If every business decides to arbitrarily double their profit margin, then prices will rise, but none of that price rise goes to salaries, nor cost of materials, or anything else but a corporate bank account. This effectively drains money from consumers, without returning anything to them via salaries.
- finspeech 4y ago
  Setting aside the almost impossible feat that every business could collude to arbitrarily double their profit margins, even if your assumption is granted, it would ultimately have no effect on consumers as a whole. So, assuming businesses are more profitable, they ultimately have 2 things they could do with that extra profit: 1. Hoard it and do nothing with it 2. Invest it In the case of 1, doing this is tantamount to taking money out of circulation (i.e. lowering supply). When the supply is lowered then everyone else’s purchasing power increases which is a benefit to them. In the case of 2, investing it, either by starting new businesses or loaning it, means that they are effectively redistributing that money to others in the form of wages. Which is beneficial to workers who also happen to be consumers.
  - ydlr 4y ago
    All of this is true is a company rises prices without affecting the behavior of others. When suppliers notice their customers raising prices, they raise prices to capture some of that increase. Likewise, workers will try to increase wages. The result is a profit-price spiral that gets misdiagnosed as wage-price spiral.
    - finspeech 4y ago
      I’ll grant this, but no matter what it’s called, ultimately no group (consumer vs. business) is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers What keeps this from happening, I think, is the presence of competition which would stop both cohorts, workers and businesses, from increasing their prices indefinitely
      - vineyardmike 4y ago
        > ultimately no group is better or worse off. In such a spiral it’s just the nominal numbers that are changing and not the ‘real’ numbers Except that wages tend to change less fluidly than prices so there’s usually a lag resulting in less purchasing power for consumers.

colechristensen 4y ago

Turn up prices when expenses rise, leave them up and profit when expenses fall. That’s it. Competition is inadequate and incentives don’t exist to price well.

refurb 4y ago

I can't tell what this article is saying. The first paragraph says "The continued drop in labor costs", but the Fed data says it hasn't dropped, it's been going up continuously.[1] The a later paragraph says "Since the labor share [of inflation] is declining" which entirely different than "drop in labor costs". So what's actually happening is labor costs are going up. They just aren't going up as fast as profits. Why can't they just write that? And the examples given "oil and gas" is an odd one, since profits vary wildly. When oil costs are down, profits are down. When oil costs go up, profits go way up. It's a capital intensive industry, and that's how it's paid for. Oil is never sold at some small profit margin. [1]https://fred.stlouisfed.org/graph/?id=ULCNFB https://fred.stlouisfed.org/graph/?id=ULCNFB,

anonreeeeplor 4y ago

This line of argument is utter nonsense and propaganda. Review the history of what happened. Covid landed. Then the federal reserve printed tons of money (shows up clearly in the percentage of government spending as share of US GDP and M2 money supply). Then there was a delay and then inflation began to increase. Inflation is always and everywhere a result of printing.

rhaway84773 4y ago
And yet the dollar is stronger than its ever been. And the inflation is global. In fact? The U.S. is faring better than most other countries. And inflation is even worse if you were using a deflationary currency like Bitcoin. The fact that someone can go through the last few years and see inflation clearly driven by war, inflation clearly driven by supply chain problems due to COVID, inflation clearly driven by Brexit when looking at the UK, and comment “inflation is always and everywhere a result of printing” is just ideological blinkerism at its finest.
- gfdgfdsgfds 4y ago
  The “inflation is always and everywhere a result of printing” line is from a Nobel laureate in economics.
  - pasabagi 4y ago
    That is by no means incompatible with ideological blinkerism.
- mountainriver 4y ago
  The big issue is that we significantly expanded the monetary supply while we had a supply chain shortages due to war/covid They aren’t in isolation, printing money when the supply chain is constrained is going to sky rocket demand, and send inflation through the roof