20 ms·
Corporate profits account for almost half the increase in Europe’s inflation
- thedangler 3y agoWell, there is basically 0 competition these days. I'm assuming that has to do with it in some factor.
- wpietri 3y agoAs they say, never waste a good crisis.
- eastbound 3y agoOR governments have demonstrated that they can take extreme decisions without warning, so businesses price accordingly. If you operate in this economy with unstable decision-making, then it creates margins to prepare padding. Even if all businesses were cash-flow-positive during Covid, the environment is still more unstable.
- hartator 3y agoThis. If govs can print out 2x the money supply in a few years, you want to “cash out” profits as fast as possible instead of reinvesting them.
- cmdli 3y agoHuh? Wouldn’t you want to reinvest in a real asset like a business instead of holding cash that inflates away?
- hartator 3y agoWhat is the point of sweating more in your business when just parking your money in real-estate and stocks will provide you more money? Might as well as raise prices, work less, and extract more money to these passive assets.
- soperj 3y agoFederal reserve is independent of government.
- mrchucklepants 3y agoIn name only.
- nameless_prole 3y ago[dead]
- ClumsyPilot 3y ago> extreme decisions without warning As opposed to previous decades where we only invaded several countries and started a few wars. Or the decades prior US had the draft to send young men against their wilk to fight a war in vietnam. Or the war with china in Korea. Or wolld war? This is amongst the calmest decades in terms of government actions
- Scoundreller 3y agoCrisitunity!
- mjcohen 3y agoWhat a surprise.
- narcraft 3y agoThe cause of rain is the ground getting wet
- smt88 3y agoThis kind of reply is uninteresting and unhelpful. These statements about inflation drivers are surprising (to some) and highly relevant because they counter corporate and conservative propaganda. We now know that government assistance isn't the main villain in the brutal inflation spikes of the last few years, and we need voters to understand that too.
- koboll 3y ago"corporate and conservative propaganda" Most center-left economists are pretty dismissive of the idea that inflation is a corporate-profits-driven phenomenon too.
- ajmurmann 3y agoI'd argue that there always must be something else at play in addition to greed. Greed is a given and the driver of the economy. Companies don't suddenly decide that maybe they should increase profits. So it's imperative to understand why they were able to increase profit margins without competition taking their market share. IMO that tells us what intervention is needed. The ideal market is companies at a constant knife fight with each other.
- pessimizer 3y agoI'd argue that there doesn't have to be any secret reason. You say that greed "is a given" as an argument that there must be something mysterious going on, but raising prices when you can get away with it is no less a given. https://news.ycombinator.com/item?id=36483676 https://news.ycombinator.com/item?id=36483676
- ajmurmann 3y ago
- nonrepeating 3y agoSomehow this makes me feel better that it’s not just an American phenomenon - that we don’t have a monopoly on callous greed.
- bee_rider 3y agoFinally we’ve managed to outsource our short-term-profit obsessed business culture across the whole globe. Yay.
- formerly_proven 3y agoLet’s be very careful about any pay raises now,* especially at the low end – we wouldn’t want a wage-price-inflation spiral! * (technically a pay cut reduction, not a net pay raise, we don’t do those in this part of the world)
- veave 3y ago[flagged]
- rapind 3y agoDon’t forget, there’s a “labour shortage”.
- coding123 3y agoSo, for the United States - we should be pointing fingers at one or two things... Is it a) the FTC has not stopped bad mergers. Too much power over the price of food/gas/etc... in control by 1 company. Or b) actual price collusion. From my personal research price collusion has become "legalized" through a cottage industry of "price analyst" companies that provide "good guestimates" of what gas, food, etc... should be. (aka realpage is out there for EVERYTHING already we just need to find them).
- edrxty 3y agoIn terms of price collision the big one is rent, there are a couple companies that sell software to literally all of the institutional landlords which determines what pricing should be for each market. The only reason rent isn't currently going through the roof was that corporate fad of buying up every property under the sun for nice reliable income.
- dantheman 3y agoWhy could corporations and anyone else buy up everything - was it perhaps absurdly low interest rates?
- skippyboxedhero 3y agoThere are no conclusions for the US. The EU isn't the US, the state of competition in each region is unrelated.
- starbugs 3y agoTLDR: * Profits: 45 percent * Import costs: 40 percent * Labour costs: 25 percent Somehow obviously arriving at 110%? "As the Chart of the Week shows, the higher inflation so far mainly reflects higher profits and import prices, with profits accounting for 45 percent of price rises since the start of 2022." "Import costs accounted for about 40 percent of inflation, while labor costs accounted for 25 percent. Taxes had a slightly deflationary impact."
- rakoo 3y agoGentle reminder that "labour costs" are, in fact, what allows you and a large majority of humans to live ie wages. Framing it as such is really non neutral and perpetuates the idea that companies should come first.
- tnel77 3y agoI’m told that greedy employees are to blame for 95% of inflation, so this is an interesting take on the subject. /s in case someone thought I was serious?
- QuarterReptile 3y agoWhy were corporations settling for such comparatively low profits before 2022?
- toomuchtodo 3y agoBecause they didn't know the pricing power they had. The macro gave them cover to stretch and see what would happen.
- m-ee 3y agoA lot of economics seems to me like the “perfectly spherical cow in a vacuum” jokes you hear about physics. There’s no concept of friction or activation energy. “The market” simply adjusts in real time without human interaction. In the real world someone needs to pitch a price increase. There’s risk that sales and profits might drop. That’s bad for the company and that persons career. When everyone else is raising prices and your costs are going up then that risk:reward ratio looks different. My company was seeing increased material costs, they raised prices to cover that and then some. Sales are down but profits went up slightly. I was in the meetings where this was discussed yet people will tell me it doesn’t happen.
- monero-xmr 3y agoAh yes ignore the money printing, certainly all of this inflation is the private sector! Where are the price caps?!?
- bedobi 3y agohow do you explain the fact that gazillions were printed for decades without much meaningful inflation? japan being the printiest of them all having had the least inflation of all crickets huh
- the_gastropod 3y agoAs a rule of thumb, it's safe to assume anyone who complains generically about "money printing" doesn't actually have a rational point. They're generally hand-waving broadly, suggesting some John Birch Society type of inflation conspiracy.
- horsawlarway 3y agoI know right - it's certainly not like that Paul Volcker fella has any fucking clue what he's talking about. --- To quote the man himself, when referring to how he was going to solve inflation: "But none of these policies, important as they are, can substitute for commitments to fiscal prudence and restraint on the money supply."
- the_gastropod 3y agoThis isn't to suggest money supply has no impact on inflation—of course it does. There's a reason Powell increased interest rates, after all. But the simplistic "MONEY PRINTER GO BRRR INFLATION LUL" meme can generally be chalked up to belief in conspiracy-theory nonsense.
- mrguyorama 3y ago> can generally be chalked up to belief in conspiracy-theory nonsense. Or worse, watching a few "economics" youtube videos and thinking you understand how the world works. Surely we should just go back to the gold standard! That didn't have regular destructive and unavoidable problems all the damn time!
- alexaholic 3y agoI find it hilarious when companies are following their stated goal of making profits, while everybody else is rushing to explaining rising prices by factoring in everything but profits.
- kome 3y agoyes, the problem is when the central bank increase rates and increase unemployment in order to tame "inflation".
- SkyPuncher 3y agoI think the pandemic has played an extremely important role in the public's perception of inflation. During the start of the pandemic, there were legitimate supply chain shortages that resulted that resulted in increased prices without increased profits. Supply chain issues are mostly fixed, but companies road that public perception for a long time to justify price increases.
- dauertewigkeit 3y agoBecause people expect that in a functioning competitive market, simpily raising prices won't work because your competitors would out bid you.
- zozbot234 3y agoThat really isn't how it works. Most real-world competition by far happens in a context of product differentiation where suppliers are only imperfect substitutes for each other's products. So you can raise prices and not be "outbid" in such a way anytime soon. Your market share would only suffer gradually over time if you kept your prices higher than the market.
- nostromo 3y agoCompanies were also seeking to maximize prices in the previous decade of record low inflation.
- 3y ago
- Jochim 3y agoPeople will continue to blame workers regardless. Central banks will continue to raise interest rates, squeezing consumers, and debt laden companies will increase prices further to compensate. The UK has already seen retail volume decouple from revenue and is now seeing the beginnings of a mortgage crisis. At least the rich will have yet another opportunity to snap up the foreclosures. The good news is that energy bills this winter might only be 2-3x what they were pre-pandemic.
- pessimizer 3y agoDanone, Kellogg among 75 companies France has asked for price cuts https://www.reuters.com/business/retail-consumer/danone-kellogg-among-75-companies-france-has-asked-price-cuts-document-2023-06-23/ https://www.reuters.com/business/retail-consumer/danone-kell... ----- Meanwhile, in the US: Car Dealer Markups Helped Drive Inflation, Study Finds: The money dealers charged over makers’ suggested prices factored into a nearly 16% rise in the consumer-price index in recent years https://www.wsj.com/articles/car-dealer-markups-helped-drive-inflation-study-finds-7c1d5a2d https://www.wsj.com/articles/car-dealer-markups-helped-drive...
- smilekzs 3y agoI wish this entire Stealerships industry just vanishes and this reason (crazy ADMs) alone is enough. There is enough tacit collusion in the industry that makes it unnecessarily difficult to get around being ripped off.
- JustBreath 3y agoI thought auto sales was a result of the downward/upward demand wave the pandemic drove? Basically fewer people bought cars, then lots more people bought cars and meanwhile there was a shortage of chips.
- skippyboxedhero 3y agoCorrect. Shortage of supply due to supply chain disruption. Increase in demand because of high savings rates. Value of used cars has increased globally because people are buying used instead of new. I am not sure what people want used car dealers to do, if they could sell more cars they would but they can't make cars appear from nowhere.
- madars 3y agoCombine that with the fact that many states have made direct-to-consumer sales illegal [1]. Pure rent-seeking and regulatory capture from dealerships. Similar with hospitals: certificate of need laws [2] mean that you need to go to your direct competitors to ask for their permission to start a new hospital. Imagine if to open a pastry shop you needed a permission from every other pastry shop in the city. When someone says: capitalism is bad, ask - what capitalism? We don't have one. [1] https://www.wispolitics.com/wp-content/uploads/2021/08/State-Laws-on-Direct-Sales.pdf https://www.wispolitics.com/wp-content/uploads/2021/08/State... (PDF) [2] https://en.wikipedia.org/wiki/Certificate_of_need?useskin=monobook https://en.wikipedia.org/wiki/Certificate_of_need?useskin=mo...
- vishnugupta 3y agoVery closely related and highly recommended reading https://www.newyorker.com/news/persons-of-interest/what-if-were-thinking-about-inflation-all-wrong https://www.newyorker.com/news/persons-of-interest/what-if-w...
- scythe 3y agoAn interesting article, but an extremely editorialized title: the original is "Europe's Economic Outlook Depends on how Corporate Profits Absorb Wage Gains". It raises the question of whether submitters should have their karma penalized for sensationalizing the title, particularly when, as in this case, it hits the #1 spot in half an hour and generates a thread full of political flamewars.
- rgbrenner 3y agoI think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change. In an inflationary period, consumers expectations change allowing more movement in this price than normal. And this permits companies to increase prices, and produce higher profits. Note, their upstream providers are doing the same, and some of these higher profits will be passed on upstream. Companies that are in a weaker market position, will find themselves unable to raise prices as much as their competitors.. and if their upstream providers find demand enables them to raise prices more than they can, they will find their profits decrease. Some of these companies will go out of business. This is one of the ways that inflation rids the market of less desirable companies. Cost-plus pricing (how many consumers imagine pricing works) has almost entirely gone away in retail pricing. Even if a producer does this, the retailers will market adjust the price themselves... This is what has happened to car sales: the manufacturer didnt capture the difference, so the dealership captured it instead.
- zozbot234 3y ago> And this permits companies to increase prices, and produce higher profits. It's worth noting that this mostly reflects short-term pricing power. It takes a lot of time for new competitors to enter any industry. So we should expect these price increases to occur rarely and be somewhat time-limited as competition ultimately reestablishes itself.
- cortesoft 3y agoMaybe... but if competitors realize that the established companies can just lower prices once they enter the market, it might not make sense to enter the market at all.
- coliveira 3y agoCompetition doesn't work correctly in modern economies because companies are allowed to buy their competitors. If you start competing with another company, they can essentially raise money to buy you and stop what would be the "normal" process. As a result, all theories that people have about how competition works don't apply as they think it should.
- seizethecheese 3y agoThis is a write up of a working paper, not published yet. Here’s the link to the actual paper: https://www.imf.org/en/Publications/WP/Issues/2023/06/23/Euro-Area-Inflation-after-the-Pandemic-and-Energy-Shock-Import-Prices-Profits-and-Wages-534837 https://www.imf.org/en/Publications/WP/Issues/2023/06/23/Eur... Here’s the abstract: > We document the importance of import prices and domestic profits as a counterpart to the recent increase in euro area inflation. Through a novel consumption deflator decomposition, we show that import prices account for 40 percent of the average change in the consumption deflator over 2022Q1 – 2023Q1, while domestic profits account for 45 percent. The increase in nominal profits was largest in sectors benefiting from increasing international commodity prices and those exposed to recent supply-demand mismatches. While the results show that firms have passed on more than the nominal cost shock, and have fared relatively better than workers, the limited available data does not point to a widespread increase in markups. Looking ahead, assuming nominal wage growth of around 4.5 percent over 2023-24 – slightly below the level seen in Q1 2023 – and broadly unchanged productivity, a normalization of the profit share to the average level over 2015-19 will be necessary to achieve a convergence of inflation to target over the next two years. Monetary policy will thus need to remain restrictive to anchor expectations and maintain subdued demand such that workers and firms settle on relative price setting that is consistent with disinflation. … This is relying on a novel approach that hasn’t been peer reviewed, so we aren’t going to jump to a bunch of conclusions, right?
- zitterbewegung 3y agoA better thing to keep in mind is if your economy is in a wage inflation cycle where companies are increasing the amount of money to pay out to employees because their costs are increasing which makes inflation goes higher and higher. It wouldn’t be as companies are just hiking prices but, YMMV. I also don’t want to say that corporate profits are something to desired for and that the outcome that the paper outlines isn’t good or bad.
- kachnuv_ocasek 3y agoWage inflation spiral is a myth.
- alexaholic 3y agoI wonder what would happen if everyone in the production chain had a profit margin of 45%
- nostromo 3y agoInflation is caused by monetary policy. Did profits increase? Potentially, yes. But they couldn't have increased without the enabling condition of massive money printing. Companies were trying to maximize profits before 2020. That hasn't changed. What changed was the monetary policy.
- lclc 3y agoThis is the correct answer and it's disappointing to see that it gets downvoted.
- victor22 3y agoYes. This is a gaslighting piece from gvmnt (as always). Here in south america they blame inflation on natural causes (ie. "rice and beans are 60% more expensive this year because of the dry winter"). Nothing but disinformation.
- marcosdumay 3y agoOh, yeah, the old inversion of "inflation is high because the dollar price increased".
- truckerbill 3y agoYes. But importantly its not the printing of money that was the problem either. If you think about the path money takes especially the furlough: government -> consumer -> big capital (Petro/chemicals, Pharmaceuticals, Food Conglomerates, Landlords, Tech...). And that's where it stays. How do you get it back? Well aimed taxes. Otherwise big capital buys all the assets as in investment with their new found pile.
- qeternity 3y ago> How do you get it back? What in the world? I get that “Big Capital” is an easy boogeyman but how do you think this works? If you print money, so you can exchange that for someone else’s goods, what entitles you to “get it back”??
- ketzu 3y agoThe interesting thing about the graph is, as far back as it goes, the contributors fluctuate but seem not unusual or unexpected. So companies are not extraordinarily greedy right now, they act the same as ever, just more do so. My personal, uneducated, unverified hypothesis was that companies overcompensate price increases for three main reasons: * They assume consumers dislike many small price increases. The current increase, therefore, has to last until the next oportunity. * They expect an economic downturn, and want to extract as much money in preparation of the reduction (ironically fueling the downturn). * They use the opportunity to adjust to what they expect the market would accept, because they assume PR backlash if they do it without a reason. I think the last one is a form of "market inefficiency" but one that generally benefits consumers.
- surement 3y ago> My personal, uneducated, unverified hypothesis was that companies overcompensate price increases for three main reasons: profit-maximizing sellers can only increase prices if demand rises, otherwise they will sell fewer units at the higher price (and if they could've made more money selling fewer units at a higher price then we can assume that they were already doing that because they are profit maximizing) the only way that demand can rise (allowing prices to rise) in unison is if there is more money going around, which is what happens when the money printer goes brr, which it did https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL
- beirut_bootleg 3y agoYour theory is assuming I'm using more toilet paper than usual, or that my budget for toilet paper has increased in the past 2 years, which is just patently ridiculous. No, this is not a joke. I wipe the same as pre 2020. I had a couple of pay raises since then, but I still buy the same amount of TP, and the price is still 50% higher than before.
- deleted 3y ago[deleted]
- einpoklum 3y agoWhy, I am shocked - shocked and chagrined - to learn that inflation is caused by capitalists raising prices to increase profits. I might even end up believing that the market system does not ensure fair distribution of resources and products in society. Perish the thought.
- deleted 3y ago[deleted]
- mkl95 3y agoRecently, I was approached by the biggest non-big-tech company I've ever talked to. They are a big EU startup and they have raised 1bn+ in the last few years. So I had a look at their Glassdoor reviews. Apparently they are extremely cheap, to the point that they make employees share a room when they attend corporate events. Other than that, I have noticed a trend where recruiters reach out on LinkedIn with what I call "Hail Mary offers". They are way below market average job postings, that in some cases offer me half my current salary, for more complex work.
- bombcar 3y agoVenture Crapitalists love when the company makes it look like their money is going to go much further because the employees are kept on a super cheap chain.
- CodeWriter23 3y agoEnergy costs, totally not a factor in the end user price of any given item. :rolleyes
- cbg0 3y agoThis is taken into the account by the paper published by the IMF.
- LudwigNagasena 3y agoI am just going to quote parts of the paper to precaution from misinterpretation and hasty judgement. I also suggest to read the paper in its entirety — most of it can be understood without any deep knowledge of economics. > While this accounting identify[GDP Deflator = Unit Profit + Unit Labor cost + Unit Taxes] does not allow for any causal interpretation, it shows how (changes in) the GDP deflator is reflected in profits per unit of real GDP (unit profits), labor compensation per unit of real GDP (unit labor cost), and taxes less subsidies per unit of GDP (unit taxes). > While nominal profits have increased, this is not necessarily true for profitability. > [Dhingra (2023) and Haskel (2023)] caution against an oversimplistic interpretation where an increase in gross operating surplus is interpreted as corporate profits being the largest driver of inflation The paper has to rely on very strong assumptions to come to its conclusion because of that.
- I_am_tiberius 3y agoThe type of inflation we're facing is possible because there's enough money in circulation. With a more or less constant money supply in regards to heavily used currencies increasing price levels at that scale would not be possible that easily.
- nr378 3y agoBusinesses are always greedy. The fact corporate profits are up is an effect of inflation, not a cause. A good essay on the topic is: https://www.economicforces.xyz/p/greedflation-lets-try-this-again https://www.economicforces.xyz/p/greedflation-lets-try-this-...
- coliveira 3y agoYou have to choose: they're either greedy or they cannot do anything about prices. If they are not driving prices to increase profits, then you can't say they're greedy. They're just doing whatever they can in a situation they don't have any control (they should also be fired and replaced by someone who can improve pricing).
- NoboruWataya 3y agoI don't really get what you mean. They are always greedy, meaning they will always set prices at the level that is most profitable for them. Which simplistically means they will increase prices until the impact of higher prices on sales outweighs the impact on margins. So their ability to set prices is constrained, principally by competition as well as the tendency of consumers to simply do without if the price is too high. When there is more money in the economy (eg, due to lower interest rates), consumers will tolerate higher prices for the same goods. Thus corporations have a greater ability to set prices, and they react, predictably, by increasing those prices.
- kibwen 3y agoRemember: profits are a direct measure of the inefficiency of a given market. In a functioning market, the existence of profits either drives businesses to reduce their own profits by competing on price (problem: cartels) or else drives new businesses to emerge in order to seize some of those profits (problem: barriers to entry). To have record-breaking profits means that are markets are record-breakingly inefficient, and an inefficient market is useless (or possibly worse than useless).
- mjburgess 3y agoI think what people operating from vauely "austrian premeses" miss is: the pandemic. We have no model of how a pandemic is going to "correlate" economic markets typically under competition. I think it's highly likely that "supra-economic" shocks of the kind we've experienced have handed a strange unexpected market power that the usual (free market) suspects have yet to parse.
- jasonsb 3y agoWhy use very fancy word to say nothing when few word do trick?
- asdff 3y ago>We have no model of how a pandemic is going to "correlate" economic markets typically under competition. Most crashes are correlated without needing a pandemic thanks to how leveraged the world is globally.
- SV_BubbleTime 3y agoThe MBAification of the world. Everyone is running too lean to wether a disruption, in debt, you can rely on zero interest loans, the governments will bail you out if you are important or a big enough donor.
- makomk 3y agoThe obvious answer here is probably that shutting down large chunks of the economy like that directly impacts its efficiency and ability to supply people with stuff, and there's probably no way of fully preventing that impact. There were a bunch of rapid demand shifts to different, non-shut-down sectors like home improvement and DIY followed by a huge spike in demand as people caught up on spending, there's not the capacity to satisfy any of that, and it makes no sense for anyone to build that capacity because by the time it was ready the demand likely wouldn't be there any more. (Look at all the big tech businesses that employed a bunch of people and then discovered the lockdown boom in demand didn't last, for example - and it's a lot more easier for them to scale up than a semiconductor fab or a car manufacturer or airlines or fossil fuel production or the entire wood harvesting and processing chain.)
- bitwize 3y agoMajor cause of crisis under capitalism found to be capitalism. Film at 11.
- abeppu 3y agoDoes this make anyone else spitefully want to spend less, even though they don't have to? My econ training is very limited, and perhaps this is a pointless idea, but - the central bank approach to curbing inflation seems to assume that actors in the economy won't change their spending patterns (and decrease firms' price-setting power) until they're unable to continue (i.e. are laid off, can't access financing, etc) or are at least afraid of being unable to continue - but if we can make people emotionally motivated, can we get people who are secure about their income to cut spending even if they aren't afraid? If you can get securely employed people with good emergency reserves to increase their savings rate out of a stubborn desire to "punish" gouging corporations ... we'd remove corporation's pricing power earlier, right? - there have been a bunch of "unconstructive" recent examples of people willing to change their spending habits without being forced, for emotional reasons (e.g. boycotting budweiser), which I think do demonstrate that not much is needed to nudge (some) people to shift their behavior
- NoboruWataya 3y agoIf you want to boycott every corporation that is trying to increase profits, you will lead a highly ascetic life. That said, what you are saying isn't entirely untrue, and in fact is considered conventional wisdom by many. If everyone was a lot more price sensitive and more willing to forego discretionary spending, then yes, profit margins and prices would probably be lower. When boomers talk about millennials and their avo toast, this is what they are talking about.
- abeppu 3y agoI don't think people need to fully boycott every company -- but we can deliberately attempt to decrease companies' pricing power by: - voluntarily reduce discretionary spending across categories - within each product category, try to spend most on the company with the thinnest margins (which may not be the cheapest)
- pnt12 3y agoOlder generations always critize younger, that has little to do with inflation and price sensitivity. The boomer doesn't like avocado toast, so they don't understand how someone would pay money for it. But it's likely they are also buying stuff milenials have no interest in.
- mensetmanusman 3y agoIn my area of the woods, prices are increasing because the boomer retirement is causing lots of skilled labor to leave the workforce.
- victor22 3y agoHuh, ok then, I guess inflation has nothing to do with the fact that they are printing currency nonstop. I guess things just randomly increase in price. Thank you IMF, very informative, I'll promise I'll even forget you have a printer.
- throwawaymaths 3y agoThis seems like a dumb headline. Suppose prices were going down because companies are testing prices and finding that volume is better than yield. Would we also get a headline "largest driver of price drops is corporate profits"?
- legitster 3y agoExample: I used to sell 100 hammers a year for $5 profit per hammer. My supplier says "There is a hammer shortage I can only give you 50 this year". Okay, so I raise the prices to the point that I know hammers are always on the shelf. And everyone else is short on hammers too, so no risk of losing sales. I'm paying only a fraction more per hammer. Any my revenue is down. But my profit margins are through the roof. Supply side issues will show up as profits purely as an accounting figment.
- perlgeek 3y ago> Supply side issues will show up as profits purely as an accounting figment. Supply side issues will show up as profit margins, by your explanation, not necessarily as greater total profits.
- badpun 3y agoMargins go up, but volume comes down, so hard to tell if the overall profits will increase or decrease.
- ImPostingOnHN 3y ago> so I raise the prices to the point that I know hammers are always on the shelf you mean, you raise the prices to the point where you maximize profits by taking advantage of the shortage to extract maximal value from consumers. In other words, the exact greedflation we're talking about. "hammers are on the shelf" is an arbitrary threshold that need not be met: supplying 50 consumers with hammers can be done with no price or marginal profit increase at all if the analogy is to fit reality, you then raise the price even more (since profit isn't necessarily maximized when demand=supply), blaming the further increase on those pesky supply chain issues, while pocketing the extra money > Any my revenue is down actually, it's up, along with profits. That's how bad the greedflation is, and how little the supply chain issues actually impact either
- WalterBright 3y agoNo, it doesn't. It depends on the deficit spending.
- miohtama 3y agoThe IMF article, probably due to political reasons, does not touch the monetary policy, or "the money printer goes brr" as it is known in Internet memes. While energy prices and poor labour productivity contribute to the inflation, the past monetary policy decisions are a major factor. The increase in money supply created for COVID-19 response, "stimulus", goes to the prices. Furthermore the ECB cannot tame the inflation, because if it hikes rates too much the EU member countries debt burden becomes unsustainable (if it is not already it). Between a rock and a hard place: keep massive inflation going on (tax on poor) to inflate away the debt, or bankcrupt the EU member states. More on the topic in the link below: the EU did not start hiking rates soon enough and is very lax rising the rates to avoid the breakdown of Euro system, and the inflation is caused by too low interest rates https://www.dw.com/en/opinion-europes-monetary-policy-shift-comes-too-late/a-62083231 https://www.dw.com/en/opinion-europes-monetary-policy-shift-...
- whimsicalism 3y agoM * V = PL * Output is the key equation. V dropped massively during the pandemic, M went up massively, output decreased and as a result PL went up. Talking about supply without velocity is not very useful I don't think.
- jl2718 3y agoIf they changed the wording from “corporate profits” to “lack of competition”, then a solution would be apparent. As it is, they’ve crafted the narrative to encourage a push toward even greater monopolism.
- darksofa 3y agoMilton Friedman - Only governments create inflation https://youtu.be/F94jGTWNWsA https://youtu.be/F94jGTWNWsA “Inflation is made in Washington because only Washington can create money. Any other attribution to other groups of inflation is wrong.”
- ShadowBanThis01 3y agoAnd this is why raising interest rates isn’t working. How about we try enforcing antitrust laws and increasing corporate taxes?
- talkingtab 3y agoThe terminology we use is important. We call this "inflation" - things cost more. But it is not "things costing more" it is corporations extracting the wealth of the citizens. The cost of gas did go up, but the profits that gas companies went up at least as much. Money is like water, you need it to flow to do good. When it is dammed up by corporations it does no good. We will not survive if we allow corporation to continually generate larger profits while paying wages that do not provide a living wage to people.
- sdenton4 3y agoGreedflation, in other words...
- hayst4ck 3y agoGreedflation frames the problem around greed. Greed is not the problem. Lack of competition is the problem. Robber barons are the problem. Citizens united legalizing bribery is the problem. Ultimately it is deeper than that. Laborers don't know how to exercise power and laborers don't know how to provide consequences when our aristocracy takes advantage of us. If banks can say "we'll trash the economy if you don't bail us out," but every day people say "we're going to suffer if you don't bail us out," the people in power have to account for these banks, but don't have to care about your suffering. The banks had a credible threat of force against decision makers making a decision, while the people offered predatory lending had no credible threat of force. Until laborers can provide a credible threat of force, we should expect to see a continuous decline in labor power, and therefore wages. Greedflation means lack of unionization.
- bugglebeetle 3y ago>Laborers don't know how to exercise power and laborers don't know how to provide consequences when our aristocracy takes advantage of us. The US specifically structured its labor laws to prevent sectorial bargaining and the kind of labor power that exists in Europe. That’s why we have company-level unions. Our country will also quite violently suppresses all protest movements and empower those on the right to maim/kill those who oppose elite economic interests. While we certainly need more unions, this in itself will not resolve these problems any more than more unionization in Russia would overthrow their oligarch class.
- ta8645 3y agoCall me a conspiracy nut, but there appears to be a coordinated effort to destroy faith in the system that gave us all the wealth we currently enjoy. I can only assume that this is being done in the service of replacing it with... something.
- ClumsyPilot 3y agoThe system that gave us wealth is not the system we have now
- ta8645 3y agoTo some degree that is true, but it is definitely the continuation of the system that generated and distributed all that wealth. And the people actively undermining faith in our current system, aren't advocating a return to a less corrupted version of what we have today. It appears to be an attempt to completely condemn it.
- csomar 3y agoThere is no coordinated effort by anyone to destroy the system. The system is destroying itself by itself. The Ottoman empire fell because it couldn't keep track of its expenses. If you print money once to fix a deficit you suddenly become complacent. Now, you do it again. It doesn't seem to have much effect and the people/markets got complacent with your behavior too. You do it again and again. Now, it's part of your "process". Let's call it Quantitative Easing. Let's also take advantage of a pandemic to print as much as we can. There is a good "reason" for that. At some point the music stops and the system collapses. There is no conspiracy there.
- bigfudge 3y agoCan I hijack this thread to ask a ‘dumb’ question: If the point of high interest rates is to take money out of the economy, would it not be more effective and fairer to simply raise taxes and pay down debt or avoid taking on more debt in the current year? I can see this wouldn’t encourage saving, but the taxes could be targeted on things which are supply constrained…
- marcod 3y agoIn my mind this is the old “If the only tool you have is a hammer, you tend to see every problem as a nail.” They can raise or decrease the interest rates as its governing body sees fit. To raise taxes or pay debt requires approval from the Legislature and that seems hard to come by.
- qeternity 3y agoBecause the money supply needs to be adjusted to a much larger degree than taxes will allow for. Additionally there is actually a shortage of USD collateral in financial markets, further reduction of which would have significant consequences. Rock, meet hard place.
- howeyc 3y agoI sell hammers for a 25% margin. I buy hammers for $10, sell for $12.50. My supplier increases prices with inflation to $11. To keep my 25% markup, I sell for $13.75. I sell 1 million hammers per year. My profit went from 2.5 million to 2.75 million, an increase of 10%. I doubt think the IMF is making this assumption, but a lot of people would see my hammer business as extracting all inflation to myself, as my profits rose 10%. However, selling 4 hammers nets me enough profit to buy one, both years. I'm not better off. I'm the same.
- batmaniam 3y agoJon Stewart touches on this issue (but for the US): https://www.youtube.com/watch?v=tU3rGFyN5uQ https://www.youtube.com/watch?v=tU3rGFyN5uQ It's rather funny (and sad) to watch the entire conversation reflecting how inflation solutions are geared towards benefiting corporations over the people.
- aa_is_op 3y agowow... who could have seen that coming?
- whimsicalism 3y agoLots of blaming of 'greedflation' as the cause of inflation in the comments here, which is definitely an outside of the economic mainstream view. If you want to hold heterodox beliefs, I think it is at least worth understanding the conventional wisdom on why inflation sees larger corporate profits: It's like Uber surge pricing, if you want more companies on the market making things people want, profits of the incumbents will rise temporarily to entice those new entrants.
- gigel82 3y agoGreedflation absolutely is a cause of inflation; maybe you highlighted the wrong word there. It is a cause, it may not be the (only) cause.
- whimsicalism 3y agoSurging aggregate demand is a cause of inflation. 'Greedflation' is only a cause in so much as governments' refusal to set price ceilings at any moment is a cause of inflation. Sure, we could instantly end inflation by making it illegal to charge prices higher than in 2020, but then we would just get shortages.
- beirut_bootleg 3y agoThere will come a moment in time when consumer wealth has been almost entirely absorbed, leaving businesses with no further profit to gain from traditional revenue streams. After years of relentless pursuit of profit, multinational corporations will have effectively captured a significant portion of the world's wealth, consolidating resources and power in the hands of a privileged few. Will the tipping point where no more wealth can be attained become the catalyst for a long-overdue revolution, leading humanity on a path towards a more just and sustainable future, or will it mark the beginning of an irreversible descent into chaos and despair? - The Frog to the Boiling Pot, June 27 2063
- akomtu 3y agoIf you collect a 50% tax from one village and a 20% tax from another village, it's expected that the second village will eventually absorb all the wealth. It's not surprising because the tax collectors happen to live in the second village.
- frogperson 3y agoBusinesses shouldn't be allowed to be one so large that healthy competition no longer exists. Right now our markets are sick, healthy competition should have driven prices back down, but that isn't what we see happening.
- beirut_bootleg 3y ago"sick" is right. A healthy market should be fine, but we have generations upon generations of chief money maker officers each trying to make line go up in the small window of time they're with the company. Repeat this enough times, and there won't be any more profit to be made.
- dahwolf 3y agoReporting from the Netherlands. I'm not an economist, but I just don't understand how the current policy has any chance of lowering inflation. Price increases here are in energy and groceries. In plenty of other things of course, but those are the two big ones hitting almost everybody severely. Most have already optimized their energy usage (some to the point of sitting in the cold) and optimized for more cost-effective grocery shopping. And that's it. Energy and food are not very elastic beyond this. One can hike rates all they want but people need energy and food. The demand will not reduce, hence inflation cannot be lowered this way? Further, if a rate hike is supposed to be a stimulant to save instead of spend, then why is savings interest at 1%? It's like setting your money on fire. What you'll see happening is that the lower classes spend for not having a choice whilst middle class and higher keeps spending as they always did. If saving is a losing game, why not? The normal result of a rate hike, elevated unemployment, isn't happening. We have a labor shortage instead. Hence this too will not curb demand. It would seem obvious that energy prices are at the core of this. Hence, one way or another they have to be lowered. But then again, doing so would increase demand. Yes, I'm totally lost.
- ChuckNorris89 3y ago>We have a labor shortage instead. Not from the Netherlands, but the labor shortage I see Austria is mostly companies still trying to pay 2020 wages rather than a lack of people motivated toi switch jobs/immigrate. Labor shortage here is just propaganda for "we can't find people willing to work at the salaries we want to pay". In similar fashion I have a constant Ferrari shortage because I can't seem to find these cars at the prices I'm wiling to pay.
- ricardobeat 3y agoThe minimum wage in the Netherlands rose over 20% since 2020, while in Austria it apparently hasn't moved. Though I have a hard time believing the "people don't want to work" theme, when the alternative is having no income at all?
- csomar 3y ago
- globalreset 3y agoGovernment/CB prints money, people get extra money so they are less price sensitive when spending, corporations can maintain higher margins. Yes, corporations are greedy, but that's not new. What's new is money printers working even faster.
- galaxyLogic 3y agoHow about government taxing workers less, providing more support for education and healthcare and transportation? Then workers wouldn't have to demand higher wages because they could get by with the subsidies they get from government. The remaining question of course is how could the government provide these extra benefits without increasing the taxes on the workers? The answer of course is raise taxes on the rich, the companies, and the super-rich. The wage-inflation problem solved.
- lend000 3y agoIf anyone read the paper, you would see this is a sensationalist headline that bundles the rising price of imports (global inflation) with domestic profits, which makes no sense. When a narrative defies logic like "corporations suddenly all became greedy and colluded to raise prices, causing inflation," it should raise alarm bells in your head. Especially if it ignores the parts where central bank governments increased their respective circulating money supplies by 20-30% in 3 months, while simultaneously flooring interest rates.
- brutusborn 3y agoWe need more land value taxes. Companies can’t hide land offshore and often use the most valuable land in inner cities. It also isn’t distortionary - shifting company tax to land taxes doesn’t disincentivise investment the way naive increases in company tax do.
- gumballindie 3y agoEurope, mainly the eu, lacks competition. This has the benefit of keeping the job market stable but comes at the price of product pricing and quality inefficiencies.
- deleted 3y ago[deleted]
- lost_tourist 3y agoHmmm this is on par with what it has been in the USA. I'm surprised that Europe's superior economic and consumer protections didn't seem to help at all in this case.
- deleted 3y ago[deleted]
- TexanFeller 3y agoCorporations were all willingly taking less than the maximum profit they could before and coincidentally when interest rates go to zero and governments provide unprecedented financial support to citizens all the companies decide to get greedy. I'm more than a bit skeptical of this narrative.
- martin82 3y agopsssst. is anyone gonna tell the IMF that, actually, money printing accounts for 100% of Europe's inflation?
- Giorgi 3y agoWhat the hell is this article? Inflation is Europe's communist government printing money, it has nothing to do with "corporate"
- mbar84 3y agoThis article offers an incorrect causal explanation. Profits don't account for anything. Profits are the result of other effects. Corporations always try to maximise profits. If their profits are higher than previously, the question is, why can they get away with it? Why is competition not eliminating the profits? Why is the price for labour not rising together with other prices? The explanation is: When the quantity of money is expanded, prices don't all rise equally fast. There is a lag for certain adjustments, depending on how often a price is renegotiated and how distant the parties are from the financial system.