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Analysis finds Australia’s inflation being driven by company profits, not wages

367 points by super256 4y ago

Slava_Propanei 4y ago
[dead]
trappist 4y ago
Wikipedia: > The Australia Institute is a left-wing public policy think tank... This is the only conclusion this organization could ever be expected to reach. In any case inflationary environments tend to be good for profits, because production takes place over time. Inputs were purchased at a lower price level than that under which final goods and services are sold.
snapplebobapple 4y ago
Is there an alternate link to the article? I cant seem to get the guardian to loaf and i want to see if they made the very basic mistake of missing that Australia is largely a resource producing country so inflation in resources prices would drive profits and inflation but would not mean inflation is driven by corporate profits.
- Izkata 4y ago
  Now I'm trying to imagine what it looks like when a website loafs. Anyway an archive might work better: https://archive.ph/JID5W https://archive.ph/JID5W
amitkgupta84 4y ago
This article is based on this paper: https://australiainstitute.org.au/wp-content/uploads/2023/02/Profit-Price-Spiral-Research-Report-WEB.pdf https://australiainstitute.org.au/wp-content/uploads/2023/02... It looks at some recent time period (roughly, during COVID) and breaks down the growth in money spent by where it goes (e.g. company profits, labor, etc.) and how much of it is due to real growth in output vs. being due to purely inflationary price hikes. It aims to show that a disproportionate amount of the excess money spent, beyond that accounted for by real growth, went to company profits. There are two problems with the approach in this article. First, its choice of time period is somewhat arbitrary. Over the course of this particular 11 quarter time period (Dec 2019 - Sep 2022), corporate (+38%) and small business (+30%) profits grew much more than labor expenditures (+17%). But just from the data presented, over the final 8 of those 11 quarters, growth in corporate profits (+22%) and labor expenditures (+18%) were comparable, and growth in small business profit (+7%) was much less. This article doesn't present the data, but what would happen if choosing a longer time scale? Quarter over quarter we see business profit growths are very volatile, sometimes growing, sometimes shrinking (negative growth). So unless you're looking at longer time horizons like decades, you can probably find runs of 8-12 quarters showing any narrative you want. The other problem is how this article tries to determine how much growth in each component was real vs. purely inflationary. The problem is it assumes the real growth of each component was the exact same (about 6.5%). After observing 38% nominal growth in corporate profits and 17% nominal growth in labor expenditures, it simply assumes the real growth in each (due to real growth in output) was the same 6.5% for each of those categories. One implication of this presumption would be that over any time period, the real output growth of corporations and the real output growth of small business would always be the exact same, percentage-wise. This is definitely a completely flawed presumption. And it's doing most of the heavy lifting in the paper's overall argument.
ffwacom 4y ago
what about the money printing
- timbit42 4y ago
  If that money was given to people who spent it on things they would have bought anyway if they weren't off work due to the pandemic restrictions, then it won't increase inflation. If it is spent on things they wouldn't have normally bought, then it increases inflation.
OscarCunningham 4y ago
Inflation is caused by the central bank failing to hit its inflation target.
WalterBright 4y ago
The wage-price spiral theory of inflation is bunk. Inflation is caused by the devaluation of excessive printing of money.
- Nursie 4y ago
  Nope. That’s well known bunk from alt-economics. Convenient to Austrians and Libertarians who get to blame the government (again), but wrong. Money supply is only one factor in a complex system.
  - brutusborn 4y ago
    Maybe it’s not the only factor but surely it’s the major factor right now? Sure, we had a supply shock, but then we printed the most currency in history and got soaring inflation.
    - notahacker 4y ago
      We also "printed the most currency in history" in years we didn't get soaring inflation...
      - brutusborn 4y ago
        Which years were those? I couldn’t find an equivalent graph for Aus, but this graph suggests there is some fairly strong correlation. https://www.longtermtrends.net/m2-money-supply-vs-inflation/ https://www.longtermtrends.net/m2-money-supply-vs-inflation/
        notahacker 4y ago
        That's a graph of growth, so every year it's above zero there's "the most money in history"! That graph is actually a neat indication that the correlation isn't particularly strong for two variables with an established causal relationship, and that inflation (high by recent standards; normal for most of the 20th century) actually kicked in properly as the money supply started to fall, at the time we were subjected to a supply shock. Australia's money supply curve represents a much smoother upward trend compared with the US, but their recent inflation spike mirrors that of the US
DecoPerson 4y ago
By its nature, the strong two-tier economy that exists within Australia is not captured within analyses like this. The “law abiding” tier that pays employees the award rate, pays something resembling proper GST & income tax, and doesn’t use Proprietary Limited tricks to escape long-term liabilities — the companies in that tier are suffering (especially the smaller ones). These companies are captured in these analyses. Those in the “under the table” tier, such as your local kebab shop or the guy who takes cash to mow your lawn weekly — they are doing OK. Cooking oil may have doubled in price and fuel is now a significant cost, but they had enough margin to absorb that and can now raise their prices as everyone else does, staying healthy. These are “shadow” companies that don’t appear in analyses. There’s also a strange kind of third tier, which is “lucky bastards” who score a government job or contract. All tiers of government pay stupidly high amounts, and there’s enough money flowing through the government that this tier (group?) is actually a significant portion of Australians. Imagine welding something for $3,000 for a local council, when it should only be $500 normally. The local council isn’t capable enough to push for reasonable prices. Oh, and then there’s mining… that’s a whole different thing. So much money there. At the end of the day, if you’re a small or medium (so 1-200 employees) business that does things properly (pays taxes, stays compliant, and charges honestly), you’re completely screwed.
- brutusborn 4y ago
  Out of interest, what makes you frame the two-tier economy like this? I’d always thought of the two tiers as rent-seeking vs firms that must compete, not small legal business vs the rest. For example you mention some companies paying award rate, but isn’t that a requirement for all companies? Obviously resource companies can afford to pay well above board, but isn’t that simply a function of high returns from rent-seeking activity?
  - DecoPerson 4y ago
    Paying award rates is a requirement of all companies, but in reality many small and medium businesses don’t. Small business pay under the table, offering certain perks to employees that make them OK with the arrangement. Medium businesses use “contractors” where workers like delivery drivers aren’t employees but individuals (or sole traders) working under piecework contracts. Neither of these are reported to any data-collecting body. (which is the point I was trying to make above but I got a bit side-tracked!)
rightbyte 4y ago
I can't believe how people buy this "wage driven inflation" thing. The asset owner have had insane gain due to X, mostly money printing I guess, and when wages start to increase it is a problem? Workers are just balancing out supply and demand ... Inflation is not driven by "company profits" either most likely. It just looks that way when wages are getting a smaller share of the inflation nominal gains than company profits.
- landswipe 4y ago
  Either way, it's going to make Australia less desirable and a lot of people are going to suffer. The economy works in mysterious ways :)
chrishare 4y ago
There are so many threads here. The reserve bank governor is deeply unpopular in the broader public because of 2021 comments he made about there being no interest rate increases needed until 2024 [1]. As mentioned in the article, many companies are posting record profits, including supermarkets [2] - leaving low and middle income people hurting, and working more hours or side jobs. Those same people also face an adversarial rental housing market [3]. Competition, at least in this market, seems to be exerting very little downward pressure on prices for commodity goods. Buy-now-pay-later schemes continue to damage the poorest in our society - even big banks now make it easy to take on bad debt [4]. There are many challenges in Australia, but also opportunities to make things better. [1] - https://www.afr.com/policy/economy/lowe-admits-embarrassing-error-on-2024-rate-rise-20220503-p5ai9e https://www.afr.com/policy/economy/lowe-admits-embarrassing-... [2] - https://www.abc.net.au/news/2023-02-23/supermarket-profits-surge-as-inflation-spikes-coles-woolworths/102004616 https://www.abc.net.au/news/2023-02-23/supermarket-profits-s... [3] - https://www.abc.net.au/news/2023-01-19/australias-rental-market-to-tighten-in-2023-2024/101860220 https://www.abc.net.au/news/2023-01-19/australias-rental-mar... [4] - https://www.nab.com.au/personal/buy-now-pay-later https://www.nab.com.au/personal/buy-now-pay-later
- Grimburger 4y ago
  > The reserve bank governor is deeply unpopular Only 30% of people have mortgages, why should the remaining 70% care, many can even put money in savings accounts again after 15 years of them being basically worthless. He never said interest rates wouldn't rise either, he basically said they don't forecast the conditions that warrant a rise won't happen until then. Here's a pro-tip if you took on too much debt under the naive belief that 0.1% interest rates were the new norm, sell your overinflated assets and live debt free.
  - chrishare 4y ago
    People who can't afford to buy get stuck with borrowing costs being passed on, anyway, and get trapped in rent spirals. I do agree that some of the criticism of Lowe is undeserved, though.
motohagiography 4y ago
It really does look like Australia tried to print its way out of the pandemic last year, and now its purchasing power hasn't kept up with other food, energy, and other inputs prices: https://tradingeconomics.com/australia/money-supply-m1 https://tradingeconomics.com/australia/money-supply-m1 What should happen is a return of Bond Vigilantes: https://www.investopedia.com/bond-vigilante-6386194 https://www.investopedia.com/bond-vigilante-6386194 , but if it doesn't, I'd wonder who is holding most of Australia's debt.
- jeeeb 4y ago
  What are we meant to summarise from the first link? I see a chart of total money supply with the y axis starting at 1640B and going to 1700B. I.e basically no difference
  - motohagiography 4y ago
    They accelerated the rate at which they issued debt / created money significantly, with the effect of it affecting purchasing power. The "they're just printing money" is probably too simple an explanation for CPI inflation, but stimulus payments the printing paid for may have eroded purchasing power.
Aunche 4y ago
Here is the "analysis" in question: https://australiainstitute.org.au/wp-content/uploads/2023/02/Profit-Price-Spiral-Research-Report-WEB.pdf https://australiainstitute.org.au/wp-content/uploads/2023/02... It never actually explains what exactly a "profit-price spiral" is. Even if company profits are to blame for inflation, the only solution that central bankers have at their disposal is to increase interest rates to cool aggregate demand. This is why we leave central banking to technocrats rather than people with a political agenda.
- Grimburger 4y ago
  The Australia Institute is a thinktank, funded by the Greens. The conclusion is already foregone, they work backwards from there, it's like asking ASPI about defense spending.
  - JumpCrisscross 4y ago
    > Australia Institute is a thinktank, funded by the Greens Source? If true, this doesn’t belong on HN.
    - thundergolfer 4y ago
      Ok, but most of the economic content posted here is funded by groups and individuals far worse than The Greens. What kind of analysis would you find independent enough to pass muster?
      - deleted 4y ago
        [deleted]
    - gruez 4y ago
      https://en.wikipedia.org/wiki/The_Australia_Institute https://en.wikipedia.org/wiki/The_Australia_Institute >The Australia Institute is a left-wing[2] public policy think tank based in Canberra, Australia [...] >The Australia Institute claims to not accept donations or commissioned work from political parties.[51]
Fervicus 4y ago
Same thing happening in Canada https://www.theglobeandmail.com/business/article-loblaw-earnings-q4-2022-grocery-profits/ https://www.theglobeandmail.com/business/article-loblaw-earn...
- refurb 4y ago
  Its called a scapegoat. The Canadian government massively expanded the money supply and took on a ton of debt giving payments during Covid. Even the BoC was caught off guard when they said “inflation was transitory”. Rather than admit it was their own policies that caused inflation they’ve decided to blame industry. Don't get me wrong, profit is going up for these industries, some of it driven by supply issues. You could argue that higher profit is helping sustain inflation (costs go up -> wages goes up -> costs go up -> etc), but higher profit is NOT the reason why inflation spike in the first place. Its quite entertaining to see but no doubt it’ll work on most of the population.
  - Fervicus 4y ago
    I agree that the government deciding to recklessly print money and not raising interest rates when they should have is the primary cause of the inflation. But are the two reasons mutually exclusive? Bad policies and corporate greed? Agree with your point about the scapegoat and the media spin too.
    - opportune 4y ago
      Corporations are motivated by profit, why would they not raise prices to reflect demand? If 100 people showed up to some guy’s hot dog stand and he periodically ran out of hot dogs everyday/had so many people in line that people didn’t even line up, he’d make more money if he raised prices until he stopped running out of hotdogs or had shorter lines. That’s because his hot dogs were mispriced relative to demand: at that price quantity demanded exceeded quantity supplied. If I were that hot dog guy I’d feel no guilt in raising the prices of my hot dogs 20% so I could make more money. Corporations work exactly the same way.
zmmmmm 4y ago
It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the food chain has taken advantage of supply shortage to eke out additional margin along the way. And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. The actual situation is that even if competition does assert itself eventually it is slow to adjust to changes in the environment AND there is very strong hysteresis: those with the opportunity are fast to put up prices and slow to lower them again to the same level even if prior conditions re-establish themselves. Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation, regardless of the source. When inflation is actually driven by consumers having too much money, fine, go for it. But when its driven by external factors all you are doing is causing misery and maybe adding fuel to the fire as people already maxed out buying essentials are in fact going to seek (require) higher salaries when you add to their cost of living.
- cyanydeez 4y ago
  It's also important to note that growing wealth inequality means you need to seduce fewer customers with these higher prices. It's most obvious with America's pharma industry where the cost to produce seriously outstrips the retail value and the market has zero incentive to make costs obvious and a whole insurance industry and it's companies are the buyers, not the individuals.
- jpgvm 4y ago
  Similarly lowering interest rates into the ground when consumers still had plenty of money but supply was constrained probably wasn't a wise move either. More targeted assistance of just affected industries during the pandemic could have prevented almost all of this.
  - stephen_g 4y ago
    True, that was a big part of the problem. This is one of these “Doesn’t anybody see this? I feel like I’m taking crazy pills here” moments - dropping the interest rates didn’t do why we wanted (just pumps up property and equity prices with cheap money but doesn’t actually stimulate the economy), even some countries set them negative which didn’t work either, and raising interest rates has never been really shown to reduce inflation (just that you can raise them high enough to cause a crisis, which causes far more problems, and then hopefully by the time the recovery starts inflation contributors have abated…) Their whole monetary policy seems to be bunk.
99_00 4y ago
>Jim received his Ph.D. in Economics from the New School for Social Research in New York. https://australiainstitute.org.au/expert/jim-stanford/ https://australiainstitute.org.au/expert/jim-stanford/ Not a credible source of information. I invite anyone who disagrees to read the actual "report". It's anti-capitalist propaganda. I have no problem with criticisms of capitalism based on facts. The cause of inflation is not a mystery. Overall people accumulated record savings during the pandemic and spent it. ‘Damn lot of money’: How households plan to spend their pandemic savings https://www.smh.com.au/business/the-economy/damn-lot-of-money-how-households-plan-to-spend-their-pandemic-savings-20211209-p59gdo.html https://www.smh.com.au/business/the-economy/damn-lot-of-mone... Add in Russia-Ukraine conflict, increased energy prices and here we are.
andrewstuart 4y ago
This does need meet the accepted wisdom and will be ignored.
quitit 4y ago
Every company I work with is trying to make up for profit lost over the covid years. Surprise surprise company after company are now posting record profits.
- gruez 4y ago
  As opposed to what, them normally not trying to increase profits? Had the pandemic not happened, would we expect CEOs to be like "meh, the last few years were pretty good so I'm not going to try too hard to make more money"?
  - quitit 4y ago
    >As opposed to what, them normally not trying to increase profits? I didn't imply or state that: strawman. >Had the pandemic not happened, would we expect CEOs to be like "meh, the last few years were pretty good so I'm not going to try too hard to make more money"? More of the same. If you're interested in posting a serious reply/question to my input about the consequences of trying to meet revenue targets, I'm more than happy to continue the discourse. If you're just looking for opportunities to spout your nonsense, don't expect a reply.
  - andrekandre 4y ago
    > As opposed to what, them normally not trying to increase profits? yea, actually that. i dont think it would be unprecedented if some companies said "hey we are making a healthy profit already, so in order to not harm our customers we'd like to keep prices as they are or reduce them if possible"...
    - andrekandre 4y ago
      i know your not supposed to talk about ↑ downvotes, but honestly i'd really appreciate someone to share why the massive downvoting of my comment? what rules/guidelines of hn did i violate here? i've never had a comment voted so badly before, so i'd really appreciate some feedback....
    - gruez 4y ago
deltree7 4y ago
Tobacco companies publishes pro-tobacco research : Reddit/HN --- Pitchfork, Pitchfork, Pitchfork Anti-Corporation dude publishes anti-corp research : Reddit/HN --- Bow, Bow, Bow It's unbelievably pathetic how smart people can be easily duped as long as it fits their narrative. Yeah, it's the same crowd that feels superior over QAnons
- renewiltord 4y ago
  The Elephant and The Rider, right? We decide whether something is good or real before we justify that rationally.
- honkler 4y ago
  So you mean to say everyone has an agenda to cross? Which, by the way, also means that you have an agenda to cross too. "Anti-anti-corporation guy makes anti-anti-corporation comment: Reddit/HN Pitchfork"
- super256 4y ago
  I posted this because I found it interesting (and especially how HN would react to it), and not because I necessarily agree with it. Especially because I have a 100% disconnect from Australia except that I find Kangaroos funny. I only have a very narrow knowledge about the political climate and monetary policies in Australia. There are many different opinions in the comments, they are worth checking out. I certainly learned a few new things. If you had a bad day, just take a step back.
opportune 4y ago
This is a direct consequence of keeping low interest rates while unemployment is low and inflation is high. It’s Macro 101. You should point your finger at the Central Bank and fiscal policies, not corporations that are acting entirely rationally in the face of good shortages and consumer purchasing power increases. Inflation is increasing corporate profits, it is not driven or caused by corporate profits.
- TheSpiceIsLife 4y ago
  What low interest rates? What goods shortages?
  - opportune 4y ago
    In Australia the central bank rate is about 3% and inflation is much higher (I think 6-7% right now). There were goods shortages during COVID caused in part by broad increases in the monetary supply and difficulty in transportation (which is exacerbated by low unemployment, which is directly linked to aggregate demand, and hence interest rates). When unemployment is too low and inflation is too high, you are supposed to increase interest rates to lower aggregate demand. Yes, central banks are doing this now and it has had some effect so far, but they have not gone far enough to address the problem.
    - TheSpiceIsLife 4y ago
      Those conditions sing exist now. Who cares what the RBA rate is, let's talk about what mortgagees are paying on loans now. If the Australian government wanted to take money out of the supply it could, for example, (temporarily?) increase the GST and use that tax revenue to either / both pay back government debt or use it to ... pay public servants more. This concept that "the RBA only has one tool" is true as far as it goes, but obviously not the only way of tackling the issue.
      - Khaine 4y ago
        The rates you pay on your mortgage is strongly correlated with the RBA interbank rate. You are absolutely right, the government could increase the GST to reduce demand. That would be political suicide, but fiscal policy absolutely can play a role. The government has abdicated from this, so it can blame the independent RBA and banks.
yyy888sss 4y ago
Inflation is a monetary phenomenon. Prices are rising in Australia because the Central Bank created $450billion out of thin air during the pandemic [1]. The bank has persistently kept interest rates low, creating a massive housing bubble [2]. For everyone saying there was 'low' inflation in the 2000s despite cheap money, remember that China and Asia were rabidly growing, flooding the world with cheap manufactured goods and lowering real prices (often 10x reduction). The inflation can still be seen when looking the price of Australian real estate, or stock markets such as Nasdaq. As for this article, companies would always like to increase prices and profit. They can only do so in unison if there is suddenly more money sloshing around. [1] - https://www.rba.gov.au/chart-pack/central-bank-balance-sheets-bond-purchases.html https://www.rba.gov.au/chart-pack/central-bank-balance-sheet... [2] - https://www.rba.gov.au/publications/bulletin/2012/dec/images/graph-1212-2-04.gif https://www.rba.gov.au/publications/bulletin/2012/dec/images...
- dyno12345 4y ago
  inflation is any time prices increase. there are multiple reasons why prices might increase.
  - thaumasiotes 4y ago
    There are two possible reasons: - The supply of money goes up. - The demand for money goes down. Neither wages nor profits are capable of affecting the supply. They might affect demand somehow, but it's not the first thing you'd look at.
    - xyzzy123 4y ago
      Doesn't the supply of stuff also matter? How about people's expectations of future prices? How about global-market linked prices of economic inputs, foreign money supply creation? Etc. I think I could come up with 50 reasons why prices might increase if I sat down long enough.
      - thaumasiotes 4y ago
anonuser123456 4y ago
Oh look, an unrefereed opinion piece by a fringe non-economist. How quaint.
- BeFlatXIII 4y ago
  Do you honestly expect economists to do a better job?
Khaine 4y ago
This is absolutely garbage, and doesn't belong on HN. From their 'analysis': "Record profits on petroleum and mining activities (reinforced by a spike in global oil and gas prices following the invasion of Ukraine) led this surge, but the overall corporate sector experienced the most rapid growth in profits of any comparable period in 35 years." So because of global shortages, commodity prices reached record highs, and companies most of which are price takers benefited from that, is now suddenly corporate greed? BHP doesn't set the price for Iron Ore, the market does. BP doesn't set the price for Oil or Natural Gas, the market does. When you cut off Russia who are a key supplier of those goods, that creates shortages and causes prices to spike. This means companies which extract those goods will make more money as long as costs remain the same. Most companies aren't making record breaking profits, their profits are rebounding to pre-COVID levels. Of course they look good compared to COVID times, when demand was suppressed.
- sander27home 4y ago
  [flagged]
- telchar 4y ago
  It’s so wrong to pretend that sellers don’t have a say in how much they ask for their goods that it borders on disingenuous. To blame the market (as if that existed apart from buyers and sellers) is to ascribe agency to something which is wholly responsive in fact. If buyers are willing to pay $80 for a barrel of oil, must BP ask for $80 and not a cent less? Of course not. You may claim they are right to do so, but don’t pretend they have no choice and therefore no blame if there are ill effects to such pricing.
  - gruez 4y ago
    >If buyers are willing to pay $80 for a barrel of oil, must BP ask for $80 and not a cent less? Of course not. You may claim they are right to do so, but don’t pretend they have no choice and therefore no blame if there are ill effects to such pricing. Since we're talking about commodities, prices are most likely set by bids/asks from all participants, rather than your model of a shopkeeper deciding what to write on price tags. If the current bid/ask for crude is at $90/$91, then there's no reason why BP should sell their oil at $80. Doing so would just end up giving $10 worth of value to whomever accepts BP's offer. In fact, you can even make it a business, by beating everyone else to the punch, buying oil at $80, then selling it back to the market at $90. The only way to avoid this is to sell the oil at market prices.
Stevenjobss 4y ago
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chris_wot 4y ago
Two years ago I left a relatively low paid job to a more fulfilling, higher paid job. I get a small pay rise but have coped ok with the enormous increases in prices and interest rates. I recognise not everyone is so lucky. However… there are plenty of jobs. Sadly, the only way to get a reasonable pay rise in Australia is to leave your job and go to another one. Your existing employer will need to pay market rates for a new enployee. They are just expecting you to dislike change. Change jobs if you can if you are underpaid.
naasking 4y ago
And inflation in North America too: https://youtu.be/udITRL9-t08 https://youtu.be/udITRL9-t08
tianqi 4y ago
So the key question is what allows Australian companies to raise prices and improve profit margins in this situation? It could be monopoly or insufficient competition.
- kaushikc 4y ago
  Monopoly/Duopoly is a natural result of competitive advantage.
  - tianqi 4y ago
    It's not necessary. It could also be due to government intervention, accidents (like pandemic randomly disrupting some supply chains), or even illegal behavior (like monopoly through mafia).
cosmin800 4y ago
That is not inflation then.
rmellow 4y ago
Non exhaustive list of things that drive inflation, ranked by how curious I find them: 1. A widespread belief that prices will increase (sometimes called inertial inflation). This is also deeply tied to public trust in monetary policy. 2. Increase of prices to accommodate increase in uncertainty that a business plan will be fulfilled, for whatever reason (distrust in institutions, unpredictable government, decline of shared infrastructure). 3. Increase in "Monetary supply", aka how much money is available in the economy. This includes increased Government spending, printing bills and bank leverage (i.e. for every dollar deposited in banks, how many times was it loaned out to someone else?).
lumb63 4y ago
I didn’t see a link in the article. You can find the report here: https://australiainstitute.org.au/report/profit-price-spiral-the-truth-behind-australias-inflation/ https://australiainstitute.org.au/report/profit-price-spiral...
KingOfCoders 4y ago
Leftist think tanks says inflation is driven by profits not wages. Duh. None of these articles look at margins but at prices (and profits) - I wish people would understand the basics of economics. If prices in the stuff you buy (gas) goes up, your revenue goes up, your profits go up, but your margin (depending on variable costs) might be the same (you don't change anything in running your business). Or prices go up because you increase prices because of demand (margin increases, profits go up). Or you increase prices because everyone increases prices (margin goes up). There are very different models for why prices (and profits go) up. We should talk about what happens, not "prices are going up", this is like saying "the sun goes up every morning", yes, some kind of understanding, but a very limited on why the sun "goes up" every morning. I'd wish journalists would not dumb down readers.
Blackstrat 4y ago
Inflation is not caused by profits or wages. Read Friedman. No one has yet made a convincing argument that he was wrong. Inflation is a monetary phenomena, not a function of normal supply & demand. In other words, it's precipitated by governments monetary practices. Look at the US, who spent 15+ years with very easy money. Now they are inflating like crazy. Proponents of Modern Monetary Theory are either ideological or simply liars. Debt matters, government spending matters, money supply growth matters. Lying about the actual inflation rate matters (the US again). As for the minimum wage, look at what happened with San Francisco & Seattle boosted their minimum wage. The current economic situation is nothing new. It's as simple as a grad school case study in macroeconomics
- kurthr 4y ago
  Hahaha... tell me more about whether bank reserves really matter, or reverse repos count and how many EuroDollars there are in "circulation". Even people at the Fed know they don't know. The global credit machine and rehypothecated swaps are both the liquidity that keeps things going and the confounding variable that makes any estimate of "money supply" hilarious. How many years (and $T) of QE was there... and nothing. Then supply chain breakdown and poof! You might as well argue it was caused by "printing bitcoin". https://youtu.be/pn8nh0jUvbs https://youtu.be/pn8nh0jUvbs Talk to an honest graduate economist. These are all inputs to a complicated foul smelling brew. I'm not arguing that debt doesn't increase risk (eg doesn't matter), but (especially when repaid) it can easily be deflationary. I will argue that we had a perfect storm of deflationary pressures (high initial rates, rising productive demos, globalization) and now we have the opposite (zero rates, falling productive demos, deglobalization) and it was all started with a pandemic and broken supply chains. The best description I can give is that keeping businesses and consumers solvent/spending during the pandemic (note that was actual spending not QE) did ALLOW prices to rise rather than causing massive demand destruction (and likely depression-deflation). Inflation at least allows those decades of debts to be repaid and might lower risk.
2devnull 4y ago
Inflation can be measured with and without wages. That’s one of the first things to know about inflation. Inflation with inflated wages is arguably a bigger concern. I didn’t read the article but the headline is good news for Australia.

367 points by super256 4y ago

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Wikipedia: > The Australia Institute is a left-wing public policy think tank... This is the only conclusion this organization could ever be expected to reach. In any case inflationary environments tend to be good for profits, because production takes place over time. Inputs were purchased at a lower price level than that under which final goods and services are sold.

snapplebobapple 4y ago

Is there an alternate link to the article? I cant seem to get the guardian to loaf and i want to see if they made the very basic mistake of missing that Australia is largely a resource producing country so inflation in resources prices would drive profits and inflation but would not mean inflation is driven by corporate profits.

Izkata 4y ago
Now I'm trying to imagine what it looks like when a website loafs. Anyway an archive might work better: https://archive.ph/JID5W https://archive.ph/JID5W

amitkgupta84 4y ago

This article is based on this paper: https://australiainstitute.org.au/wp-content/uploads/2023/02/Profit-Price-Spiral-Research-Report-WEB.pdf https://australiainstitute.org.au/wp-content/uploads/2023/02... It looks at some recent time period (roughly, during COVID) and breaks down the growth in money spent by where it goes (e.g. company profits, labor, etc.) and how much of it is due to real growth in output vs. being due to purely inflationary price hikes. It aims to show that a disproportionate amount of the excess money spent, beyond that accounted for by real growth, went to company profits. There are two problems with the approach in this article. First, its choice of time period is somewhat arbitrary. Over the course of this particular 11 quarter time period (Dec 2019 - Sep 2022), corporate (+38%) and small business (+30%) profits grew much more than labor expenditures (+17%). But just from the data presented, over the final 8 of those 11 quarters, growth in corporate profits (+22%) and labor expenditures (+18%) were comparable, and growth in small business profit (+7%) was much less. This article doesn't present the data, but what would happen if choosing a longer time scale? Quarter over quarter we see business profit growths are very volatile, sometimes growing, sometimes shrinking (negative growth). So unless you're looking at longer time horizons like decades, you can probably find runs of 8-12 quarters showing any narrative you want. The other problem is how this article tries to determine how much growth in each component was real vs. purely inflationary. The problem is it assumes the real growth of each component was the exact same (about 6.5%). After observing 38% nominal growth in corporate profits and 17% nominal growth in labor expenditures, it simply assumes the real growth in each (due to real growth in output) was the same 6.5% for each of those categories. One implication of this presumption would be that over any time period, the real output growth of corporations and the real output growth of small business would always be the exact same, percentage-wise. This is definitely a completely flawed presumption. And it's doing most of the heavy lifting in the paper's overall argument.

ffwacom 4y ago

what about the money printing

timbit42 4y ago
If that money was given to people who spent it on things they would have bought anyway if they weren't off work due to the pandemic restrictions, then it won't increase inflation. If it is spent on things they wouldn't have normally bought, then it increases inflation.

OscarCunningham 4y ago

Inflation is caused by the central bank failing to hit its inflation target.

WalterBright 4y ago

The wage-price spiral theory of inflation is bunk. Inflation is caused by the devaluation of excessive printing of money.

Nursie 4y ago
Nope. That’s well known bunk from alt-economics. Convenient to Austrians and Libertarians who get to blame the government (again), but wrong. Money supply is only one factor in a complex system.
- brutusborn 4y ago
  Maybe it’s not the only factor but surely it’s the major factor right now? Sure, we had a supply shock, but then we printed the most currency in history and got soaring inflation.
  - notahacker 4y ago
    We also "printed the most currency in history" in years we didn't get soaring inflation...
    - brutusborn 4y ago
      Which years were those? I couldn’t find an equivalent graph for Aus, but this graph suggests there is some fairly strong correlation. https://www.longtermtrends.net/m2-money-supply-vs-inflation/ https://www.longtermtrends.net/m2-money-supply-vs-inflation/
      - notahacker 4y ago
        That's a graph of growth, so every year it's above zero there's "the most money in history"! That graph is actually a neat indication that the correlation isn't particularly strong for two variables with an established causal relationship, and that inflation (high by recent standards; normal for most of the 20th century) actually kicked in properly as the money supply started to fall, at the time we were subjected to a supply shock. Australia's money supply curve represents a much smoother upward trend compared with the US, but their recent inflation spike mirrors that of the US

DecoPerson 4y ago

By its nature, the strong two-tier economy that exists within Australia is not captured within analyses like this. The “law abiding” tier that pays employees the award rate, pays something resembling proper GST & income tax, and doesn’t use Proprietary Limited tricks to escape long-term liabilities — the companies in that tier are suffering (especially the smaller ones). These companies are captured in these analyses. Those in the “under the table” tier, such as your local kebab shop or the guy who takes cash to mow your lawn weekly — they are doing OK. Cooking oil may have doubled in price and fuel is now a significant cost, but they had enough margin to absorb that and can now raise their prices as everyone else does, staying healthy. These are “shadow” companies that don’t appear in analyses. There’s also a strange kind of third tier, which is “lucky bastards” who score a government job or contract. All tiers of government pay stupidly high amounts, and there’s enough money flowing through the government that this tier (group?) is actually a significant portion of Australians. Imagine welding something for $3,000 for a local council, when it should only be $500 normally. The local council isn’t capable enough to push for reasonable prices. Oh, and then there’s mining… that’s a whole different thing. So much money there. At the end of the day, if you’re a small or medium (so 1-200 employees) business that does things properly (pays taxes, stays compliant, and charges honestly), you’re completely screwed.

brutusborn 4y ago
Out of interest, what makes you frame the two-tier economy like this? I’d always thought of the two tiers as rent-seeking vs firms that must compete, not small legal business vs the rest. For example you mention some companies paying award rate, but isn’t that a requirement for all companies? Obviously resource companies can afford to pay well above board, but isn’t that simply a function of high returns from rent-seeking activity?
- DecoPerson 4y ago
  Paying award rates is a requirement of all companies, but in reality many small and medium businesses don’t. Small business pay under the table, offering certain perks to employees that make them OK with the arrangement. Medium businesses use “contractors” where workers like delivery drivers aren’t employees but individuals (or sole traders) working under piecework contracts. Neither of these are reported to any data-collecting body. (which is the point I was trying to make above but I got a bit side-tracked!)

rightbyte 4y ago

I can't believe how people buy this "wage driven inflation" thing. The asset owner have had insane gain due to X, mostly money printing I guess, and when wages start to increase it is a problem? Workers are just balancing out supply and demand ... Inflation is not driven by "company profits" either most likely. It just looks that way when wages are getting a smaller share of the inflation nominal gains than company profits.

landswipe 4y ago
Either way, it's going to make Australia less desirable and a lot of people are going to suffer. The economy works in mysterious ways :)

chrishare 4y ago

There are so many threads here. The reserve bank governor is deeply unpopular in the broader public because of 2021 comments he made about there being no interest rate increases needed until 2024 [1]. As mentioned in the article, many companies are posting record profits, including supermarkets [2] - leaving low and middle income people hurting, and working more hours or side jobs. Those same people also face an adversarial rental housing market [3]. Competition, at least in this market, seems to be exerting very little downward pressure on prices for commodity goods. Buy-now-pay-later schemes continue to damage the poorest in our society - even big banks now make it easy to take on bad debt [4]. There are many challenges in Australia, but also opportunities to make things better. [1] - https://www.afr.com/policy/economy/lowe-admits-embarrassing-error-on-2024-rate-rise-20220503-p5ai9e https://www.afr.com/policy/economy/lowe-admits-embarrassing-... [2] - https://www.abc.net.au/news/2023-02-23/supermarket-profits-surge-as-inflation-spikes-coles-woolworths/102004616 https://www.abc.net.au/news/2023-02-23/supermarket-profits-s... [3] - https://www.abc.net.au/news/2023-01-19/australias-rental-market-to-tighten-in-2023-2024/101860220 https://www.abc.net.au/news/2023-01-19/australias-rental-mar... [4] - https://www.nab.com.au/personal/buy-now-pay-later https://www.nab.com.au/personal/buy-now-pay-later

Grimburger 4y ago
> The reserve bank governor is deeply unpopular Only 30% of people have mortgages, why should the remaining 70% care, many can even put money in savings accounts again after 15 years of them being basically worthless. He never said interest rates wouldn't rise either, he basically said they don't forecast the conditions that warrant a rise won't happen until then. Here's a pro-tip if you took on too much debt under the naive belief that 0.1% interest rates were the new norm, sell your overinflated assets and live debt free.
- chrishare 4y ago
  People who can't afford to buy get stuck with borrowing costs being passed on, anyway, and get trapped in rent spirals. I do agree that some of the criticism of Lowe is undeserved, though.

motohagiography 4y ago

It really does look like Australia tried to print its way out of the pandemic last year, and now its purchasing power hasn't kept up with other food, energy, and other inputs prices: https://tradingeconomics.com/australia/money-supply-m1 https://tradingeconomics.com/australia/money-supply-m1 What should happen is a return of Bond Vigilantes: https://www.investopedia.com/bond-vigilante-6386194 https://www.investopedia.com/bond-vigilante-6386194 , but if it doesn't, I'd wonder who is holding most of Australia's debt.

jeeeb 4y ago
What are we meant to summarise from the first link? I see a chart of total money supply with the y axis starting at 1640B and going to 1700B. I.e basically no difference
- motohagiography 4y ago
  They accelerated the rate at which they issued debt / created money significantly, with the effect of it affecting purchasing power. The "they're just printing money" is probably too simple an explanation for CPI inflation, but stimulus payments the printing paid for may have eroded purchasing power.

Aunche 4y ago

Here is the "analysis" in question: https://australiainstitute.org.au/wp-content/uploads/2023/02/Profit-Price-Spiral-Research-Report-WEB.pdf https://australiainstitute.org.au/wp-content/uploads/2023/02... It never actually explains what exactly a "profit-price spiral" is. Even if company profits are to blame for inflation, the only solution that central bankers have at their disposal is to increase interest rates to cool aggregate demand. This is why we leave central banking to technocrats rather than people with a political agenda.

Grimburger 4y ago
The Australia Institute is a thinktank, funded by the Greens. The conclusion is already foregone, they work backwards from there, it's like asking ASPI about defense spending.
- JumpCrisscross 4y ago
  > Australia Institute is a thinktank, funded by the Greens Source? If true, this doesn’t belong on HN.
  - thundergolfer 4y ago
    Ok, but most of the economic content posted here is funded by groups and individuals far worse than The Greens. What kind of analysis would you find independent enough to pass muster?
    - deleted 4y ago
      [deleted]
  - gruez 4y ago
    https://en.wikipedia.org/wiki/The_Australia_Institute https://en.wikipedia.org/wiki/The_Australia_Institute >The Australia Institute is a left-wing[2] public policy think tank based in Canberra, Australia [...] >The Australia Institute claims to not accept donations or commissioned work from political parties.[51]

Fervicus 4y ago

Same thing happening in Canada https://www.theglobeandmail.com/business/article-loblaw-earnings-q4-2022-grocery-profits/ https://www.theglobeandmail.com/business/article-loblaw-earn...

refurb 4y ago
Its called a scapegoat. The Canadian government massively expanded the money supply and took on a ton of debt giving payments during Covid. Even the BoC was caught off guard when they said “inflation was transitory”. Rather than admit it was their own policies that caused inflation they’ve decided to blame industry. Don't get me wrong, profit is going up for these industries, some of it driven by supply issues. You could argue that higher profit is helping sustain inflation (costs go up -> wages goes up -> costs go up -> etc), but higher profit is NOT the reason why inflation spike in the first place. Its quite entertaining to see but no doubt it’ll work on most of the population.
- Fervicus 4y ago
  I agree that the government deciding to recklessly print money and not raising interest rates when they should have is the primary cause of the inflation. But are the two reasons mutually exclusive? Bad policies and corporate greed? Agree with your point about the scapegoat and the media spin too.
  - opportune 4y ago
    Corporations are motivated by profit, why would they not raise prices to reflect demand? If 100 people showed up to some guy’s hot dog stand and he periodically ran out of hot dogs everyday/had so many people in line that people didn’t even line up, he’d make more money if he raised prices until he stopped running out of hotdogs or had shorter lines. That’s because his hot dogs were mispriced relative to demand: at that price quantity demanded exceeded quantity supplied. If I were that hot dog guy I’d feel no guilt in raising the prices of my hot dogs 20% so I could make more money. Corporations work exactly the same way.

zmmmmm 4y ago

It's yet another example of the gap that always exists between economic theory and economic practice. In this case, what we have is that every player in the food chain has taken advantage of supply shortage to eke out additional margin along the way. And why not? Your products are in demand and there are buyers who are willing to pay more than the theoretical market price. The actual situation is that even if competition does assert itself eventually it is slow to adjust to changes in the environment AND there is very strong hysteresis: those with the opportunity are fast to put up prices and slow to lower them again to the same level even if prior conditions re-establish themselves. Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation, regardless of the source. When inflation is actually driven by consumers having too much money, fine, go for it. But when its driven by external factors all you are doing is causing misery and maybe adding fuel to the fire as people already maxed out buying essentials are in fact going to seek (require) higher salaries when you add to their cost of living.

cyanydeez 4y ago
It's also important to note that growing wealth inequality means you need to seduce fewer customers with these higher prices. It's most obvious with America's pharma industry where the cost to produce seriously outstrips the retail value and the market has zero incentive to make costs obvious and a whole insurance industry and it's companies are the buyers, not the individuals.
jpgvm 4y ago
Similarly lowering interest rates into the ground when consumers still had plenty of money but supply was constrained probably wasn't a wise move either. More targeted assistance of just affected industries during the pandemic could have prevented almost all of this.
- stephen_g 4y ago
  True, that was a big part of the problem. This is one of these “Doesn’t anybody see this? I feel like I’m taking crazy pills here” moments - dropping the interest rates didn’t do why we wanted (just pumps up property and equity prices with cheap money but doesn’t actually stimulate the economy), even some countries set them negative which didn’t work either, and raising interest rates has never been really shown to reduce inflation (just that you can raise them high enough to cause a crisis, which causes far more problems, and then hopefully by the time the recovery starts inflation contributors have abated…) Their whole monetary policy seems to be bunk.

99_00 4y ago

>Jim received his Ph.D. in Economics from the New School for Social Research in New York. https://australiainstitute.org.au/expert/jim-stanford/ https://australiainstitute.org.au/expert/jim-stanford/ Not a credible source of information. I invite anyone who disagrees to read the actual "report". It's anti-capitalist propaganda. I have no problem with criticisms of capitalism based on facts. The cause of inflation is not a mystery. Overall people accumulated record savings during the pandemic and spent it. ‘Damn lot of money’: How households plan to spend their pandemic savings https://www.smh.com.au/business/the-economy/damn-lot-of-money-how-households-plan-to-spend-their-pandemic-savings-20211209-p59gdo.html https://www.smh.com.au/business/the-economy/damn-lot-of-mone... Add in Russia-Ukraine conflict, increased energy prices and here we are.

andrewstuart 4y ago

This does need meet the accepted wisdom and will be ignored.

quitit 4y ago

Every company I work with is trying to make up for profit lost over the covid years. Surprise surprise company after company are now posting record profits.

gruez 4y ago
As opposed to what, them normally not trying to increase profits? Had the pandemic not happened, would we expect CEOs to be like "meh, the last few years were pretty good so I'm not going to try too hard to make more money"?
- quitit 4y ago
  >As opposed to what, them normally not trying to increase profits? I didn't imply or state that: strawman. >Had the pandemic not happened, would we expect CEOs to be like "meh, the last few years were pretty good so I'm not going to try too hard to make more money"? More of the same. If you're interested in posting a serious reply/question to my input about the consequences of trying to meet revenue targets, I'm more than happy to continue the discourse. If you're just looking for opportunities to spout your nonsense, don't expect a reply.
- andrekandre 4y ago
  > As opposed to what, them normally not trying to increase profits? yea, actually that. i dont think it would be unprecedented if some companies said "hey we are making a healthy profit already, so in order to not harm our customers we'd like to keep prices as they are or reduce them if possible"...
  - andrekandre 4y ago
    i know your not supposed to talk about ↑ downvotes, but honestly i'd really appreciate someone to share why the massive downvoting of my comment? what rules/guidelines of hn did i violate here? i've never had a comment voted so badly before, so i'd really appreciate some feedback....
  - gruez 4y ago

deltree7 4y ago

Tobacco companies publishes pro-tobacco research : Reddit/HN --- Pitchfork, Pitchfork, Pitchfork Anti-Corporation dude publishes anti-corp research : Reddit/HN --- Bow, Bow, Bow It's unbelievably pathetic how smart people can be easily duped as long as it fits their narrative. Yeah, it's the same crowd that feels superior over QAnons

renewiltord 4y ago
The Elephant and The Rider, right? We decide whether something is good or real before we justify that rationally.
honkler 4y ago
So you mean to say everyone has an agenda to cross? Which, by the way, also means that you have an agenda to cross too. "Anti-anti-corporation guy makes anti-anti-corporation comment: Reddit/HN Pitchfork"
super256 4y ago
I posted this because I found it interesting (and especially how HN would react to it), and not because I necessarily agree with it. Especially because I have a 100% disconnect from Australia except that I find Kangaroos funny. I only have a very narrow knowledge about the political climate and monetary policies in Australia. There are many different opinions in the comments, they are worth checking out. I certainly learned a few new things. If you had a bad day, just take a step back.

opportune 4y ago

This is a direct consequence of keeping low interest rates while unemployment is low and inflation is high. It’s Macro 101. You should point your finger at the Central Bank and fiscal policies, not corporations that are acting entirely rationally in the face of good shortages and consumer purchasing power increases. Inflation is increasing corporate profits, it is not driven or caused by corporate profits.

TheSpiceIsLife 4y ago
What low interest rates? What goods shortages?
- opportune 4y ago
  In Australia the central bank rate is about 3% and inflation is much higher (I think 6-7% right now). There were goods shortages during COVID caused in part by broad increases in the monetary supply and difficulty in transportation (which is exacerbated by low unemployment, which is directly linked to aggregate demand, and hence interest rates). When unemployment is too low and inflation is too high, you are supposed to increase interest rates to lower aggregate demand. Yes, central banks are doing this now and it has had some effect so far, but they have not gone far enough to address the problem.
  - TheSpiceIsLife 4y ago
    Those conditions sing exist now. Who cares what the RBA rate is, let's talk about what mortgagees are paying on loans now. If the Australian government wanted to take money out of the supply it could, for example, (temporarily?) increase the GST and use that tax revenue to either / both pay back government debt or use it to ... pay public servants more. This concept that "the RBA only has one tool" is true as far as it goes, but obviously not the only way of tackling the issue.
    - Khaine 4y ago
      The rates you pay on your mortgage is strongly correlated with the RBA interbank rate. You are absolutely right, the government could increase the GST to reduce demand. That would be political suicide, but fiscal policy absolutely can play a role. The government has abdicated from this, so it can blame the independent RBA and banks.

yyy888sss 4y ago

Inflation is a monetary phenomenon. Prices are rising in Australia because the Central Bank created $450billion out of thin air during the pandemic [1]. The bank has persistently kept interest rates low, creating a massive housing bubble [2]. For everyone saying there was 'low' inflation in the 2000s despite cheap money, remember that China and Asia were rabidly growing, flooding the world with cheap manufactured goods and lowering real prices (often 10x reduction). The inflation can still be seen when looking the price of Australian real estate, or stock markets such as Nasdaq. As for this article, companies would always like to increase prices and profit. They can only do so in unison if there is suddenly more money sloshing around. [1] - https://www.rba.gov.au/chart-pack/central-bank-balance-sheets-bond-purchases.html https://www.rba.gov.au/chart-pack/central-bank-balance-sheet... [2] - https://www.rba.gov.au/publications/bulletin/2012/dec/images/graph-1212-2-04.gif https://www.rba.gov.au/publications/bulletin/2012/dec/images...

dyno12345 4y ago
inflation is any time prices increase. there are multiple reasons why prices might increase.
- thaumasiotes 4y ago
  There are two possible reasons: - The supply of money goes up. - The demand for money goes down. Neither wages nor profits are capable of affecting the supply. They might affect demand somehow, but it's not the first thing you'd look at.
  - xyzzy123 4y ago
    Doesn't the supply of stuff also matter? How about people's expectations of future prices? How about global-market linked prices of economic inputs, foreign money supply creation? Etc. I think I could come up with 50 reasons why prices might increase if I sat down long enough.
    - thaumasiotes 4y ago

anonuser123456 4y ago

Oh look, an unrefereed opinion piece by a fringe non-economist. How quaint.

BeFlatXIII 4y ago
Do you honestly expect economists to do a better job?

Khaine 4y ago

This is absolutely garbage, and doesn't belong on HN. From their 'analysis': "Record profits on petroleum and mining activities (reinforced by a spike in global oil and gas prices following the invasion of Ukraine) led this surge, but the overall corporate sector experienced the most rapid growth in profits of any comparable period in 35 years." So because of global shortages, commodity prices reached record highs, and companies most of which are price takers benefited from that, is now suddenly corporate greed? BHP doesn't set the price for Iron Ore, the market does. BP doesn't set the price for Oil or Natural Gas, the market does. When you cut off Russia who are a key supplier of those goods, that creates shortages and causes prices to spike. This means companies which extract those goods will make more money as long as costs remain the same. Most companies aren't making record breaking profits, their profits are rebounding to pre-COVID levels. Of course they look good compared to COVID times, when demand was suppressed.

sander27home 4y ago
[flagged]
telchar 4y ago
It’s so wrong to pretend that sellers don’t have a say in how much they ask for their goods that it borders on disingenuous. To blame the market (as if that existed apart from buyers and sellers) is to ascribe agency to something which is wholly responsive in fact. If buyers are willing to pay $80 for a barrel of oil, must BP ask for $80 and not a cent less? Of course not. You may claim they are right to do so, but don’t pretend they have no choice and therefore no blame if there are ill effects to such pricing.
- gruez 4y ago
  >If buyers are willing to pay $80 for a barrel of oil, must BP ask for $80 and not a cent less? Of course not. You may claim they are right to do so, but don’t pretend they have no choice and therefore no blame if there are ill effects to such pricing. Since we're talking about commodities, prices are most likely set by bids/asks from all participants, rather than your model of a shopkeeper deciding what to write on price tags. If the current bid/ask for crude is at $90/$91, then there's no reason why BP should sell their oil at $80. Doing so would just end up giving $10 worth of value to whomever accepts BP's offer. In fact, you can even make it a business, by beating everyone else to the punch, buying oil at $80, then selling it back to the market at $90. The only way to avoid this is to sell the oil at market prices.

Stevenjobss 4y ago

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chris_wot 4y ago

Two years ago I left a relatively low paid job to a more fulfilling, higher paid job. I get a small pay rise but have coped ok with the enormous increases in prices and interest rates. I recognise not everyone is so lucky. However… there are plenty of jobs. Sadly, the only way to get a reasonable pay rise in Australia is to leave your job and go to another one. Your existing employer will need to pay market rates for a new enployee. They are just expecting you to dislike change. Change jobs if you can if you are underpaid.

naasking 4y ago

And inflation in North America too: https://youtu.be/udITRL9-t08 https://youtu.be/udITRL9-t08

tianqi 4y ago

So the key question is what allows Australian companies to raise prices and improve profit margins in this situation? It could be monopoly or insufficient competition.

kaushikc 4y ago
Monopoly/Duopoly is a natural result of competitive advantage.
- tianqi 4y ago
  It's not necessary. It could also be due to government intervention, accidents (like pandemic randomly disrupting some supply chains), or even illegal behavior (like monopoly through mafia).

cosmin800 4y ago

That is not inflation then.

rmellow 4y ago

Non exhaustive list of things that drive inflation, ranked by how curious I find them: 1. A widespread belief that prices will increase (sometimes called inertial inflation). This is also deeply tied to public trust in monetary policy. 2. Increase of prices to accommodate increase in uncertainty that a business plan will be fulfilled, for whatever reason (distrust in institutions, unpredictable government, decline of shared infrastructure). 3. Increase in "Monetary supply", aka how much money is available in the economy. This includes increased Government spending, printing bills and bank leverage (i.e. for every dollar deposited in banks, how many times was it loaned out to someone else?).

lumb63 4y ago

I didn’t see a link in the article. You can find the report here: https://australiainstitute.org.au/report/profit-price-spiral-the-truth-behind-australias-inflation/ https://australiainstitute.org.au/report/profit-price-spiral...

KingOfCoders 4y ago

Leftist think tanks says inflation is driven by profits not wages. Duh. None of these articles look at margins but at prices (and profits) - I wish people would understand the basics of economics. If prices in the stuff you buy (gas) goes up, your revenue goes up, your profits go up, but your margin (depending on variable costs) might be the same (you don't change anything in running your business). Or prices go up because you increase prices because of demand (margin increases, profits go up). Or you increase prices because everyone increases prices (margin goes up). There are very different models for why prices (and profits go) up. We should talk about what happens, not "prices are going up", this is like saying "the sun goes up every morning", yes, some kind of understanding, but a very limited on why the sun "goes up" every morning. I'd wish journalists would not dumb down readers.

Blackstrat 4y ago

Inflation is not caused by profits or wages. Read Friedman. No one has yet made a convincing argument that he was wrong. Inflation is a monetary phenomena, not a function of normal supply & demand. In other words, it's precipitated by governments monetary practices. Look at the US, who spent 15+ years with very easy money. Now they are inflating like crazy. Proponents of Modern Monetary Theory are either ideological or simply liars. Debt matters, government spending matters, money supply growth matters. Lying about the actual inflation rate matters (the US again). As for the minimum wage, look at what happened with San Francisco & Seattle boosted their minimum wage. The current economic situation is nothing new. It's as simple as a grad school case study in macroeconomics

kurthr 4y ago
Hahaha... tell me more about whether bank reserves really matter, or reverse repos count and how many EuroDollars there are in "circulation". Even people at the Fed know they don't know. The global credit machine and rehypothecated swaps are both the liquidity that keeps things going and the confounding variable that makes any estimate of "money supply" hilarious. How many years (and $T) of QE was there... and nothing. Then supply chain breakdown and poof! You might as well argue it was caused by "printing bitcoin". https://youtu.be/pn8nh0jUvbs https://youtu.be/pn8nh0jUvbs Talk to an honest graduate economist. These are all inputs to a complicated foul smelling brew. I'm not arguing that debt doesn't increase risk (eg doesn't matter), but (especially when repaid) it can easily be deflationary. I will argue that we had a perfect storm of deflationary pressures (high initial rates, rising productive demos, globalization) and now we have the opposite (zero rates, falling productive demos, deglobalization) and it was all started with a pandemic and broken supply chains. The best description I can give is that keeping businesses and consumers solvent/spending during the pandemic (note that was actual spending not QE) did ALLOW prices to rise rather than causing massive demand destruction (and likely depression-deflation). Inflation at least allows those decades of debts to be repaid and might lower risk.

2devnull 4y ago

Inflation can be measured with and without wages. That’s one of the first things to know about inflation. Inflation with inflated wages is arguably a bigger concern. I didn’t read the article but the headline is good news for Australia.