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I don’t really understand the argument that corporate profits are driving inflation. If demand for a product goes up, we would naturally expect prices to rise s

I don’t really understand the argument that corporate profits are driving inflation. If demand for a product goes up, we would naturally expect prices to rise since there is more competition for a fixed set of goods. Since the cost of producing the product has not increased, corporate profits necessarily rise. In the long term, we would expect competition to drive prices back to marginal cost as production of that product increases, but this process can takes time. In this case, how do you separate inflation due to increased demand from inflation due to corporate profits? The two seem inextricably tied to me.

FollowingTheDao 3y ago
Because the corporations are saying it is an increase in costs that are driving higher prices, not demand. And the price curve for things like "eggs" is not being driven by demand.
- Matticus_Rex 3y ago
  Demand relative to supply. You don't think prices for eggs are being driven by supply and demand?
  - FollowingTheDao 3y ago
    I think the profit is not being realized because of supply and demand.
    - Matticus_Rex 3y ago
      Wait, the profit "is not being realized?" That contradicts all of what you're saying elsewhere, no?
- pookha 3y ago
  I have a hard time believing this is supply-side inflation. Are they saying that multi-national corporations are inflating their own prices so-as to invoke cost-push inflation so that they can profit on the back-end? If that's what the EU is saying (which is what you're implying) than they're insane conspiracy theorists. markets aren't centrally planned processes, especially markets as complex as the EU's. Chances are it's demand side inflation, which is exactly what the US has. The US had a massive recession in 2007 and they inundated corporations with bailouts yet this did nothing to spike inflation. When the US pumped trillions of active currency into the economy they triggered demand-side inflation (https://www.bloomberg.com/news/articles/2022-08-24/demand-surge-was-top-us-inflation-driver-n-y-fed-study-finds https://www.bloomberg.com/news/articles/2022-08-24/demand-su...). How is the EU any different? They too pumped excessive amounts of currency into their markets (https://www.consilium.europa.eu/en/policies/coronavirus/covid-19-economy/ https://www.consilium.europa.eu/en/policies/coronavirus/covi...).
  - polygamous_bat 3y ago
    > markets aren't centrally planned processes, especially markets as complex as the EU's. It could be when all the brands are owned by a couple of corporations, which are chaired by a couple of large investment firms. You know for a fact that big tech was doing a no poaching agreement in 2005, but can't wrap your head around the fact that corporations can collude on a price hikes in 2023?
- s1artibartfast 3y ago
  You picked just about the worst example to make your case. Egg prices Spiked to huge numbers because of large culls of egg laying hens then fell back down. They didn't fall all the way back down because customers are now willing to pay higher prices
  - W3cUYxYwmXb5c 3y ago
    no don't you understand, the egg producers just became more greedy for a bit and raked in extra profits, then decided to become less greedy! Get out of here with your important context!
guerrilla 3y ago
You can look at plenty of markets where there is no increased demand. Food is an obvious one. Also as other people have pointed out, it's not like they're hiding it.
- throwaway173738 3y ago
  The price of a pound of oats at the regular grocery store has trebled over the last year to 5.00/lb. Meanwhile if you buy them in 25 lb bags at Cash and Carry they’re less than 80 cents a pound. Someone is gouging like crazy.
  - jimbokun 3y ago
    Then go to Cash and Carry to buy your oats?
    - guerrilla 3y ago
      You're moving the goalpost. The point was establish whether price gouging is occurring. We did that.
  - pookha 3y ago
    The producer price index in the US was at 118 in 2020. It shot up to 140.72. In the US that corresponds to the producer having less purchasing power which directly ties into our consumer price index and the raw costs of goods. At one point the producer-side inflation was WORSE. Businesses were loosing their asses in the US. it wasn't "price gouging". https://ycharts.com/indicators/us_producer_price_index https://ycharts.com/indicators/us_producer_price_index
- randomdata 3y ago
  Food is down 20-40% over last year and the only thing still propping it up as much as it is surrounds concern over the US midwest drought. Indeed, consumer buying lags production, but it is only a matter of time.
  - 3y ago
mattbrewsbytes 3y ago
You can't compare prices and profits. Increased demand and short supply can cause prices to rise. Prices. Not Profits. Profits are typically after costs of selling goods/services. If pandemic caused various factors to cost a lot more and that cost was passed onto consumers at a similar rate as in the past then profits should remain same-ish. Its possible and logical that companies raised prices during the pandemic due to some cost increase (parts, shipping, etc.) and then never lowered prices even though that cost increase faded away. If over a long period of time there has been consolidation (aka acquisitions) in an industry and there are only a few conglomerates around, they essentially have a market to themselves and can do what they want without actually legally being considered a monopoly.
- s1artibartfast 3y ago
  Increase demand in short supply can absolutely cause profits to increase. If people are willing to pay more, you expect profits to climb.
  - Matticus_Rex 3y ago
    People are downvoting this, but this is really basic stuff with tons of empirical grounding.
randomcarbloke 3y ago
people seem to think there is a corporate generosity/corporate greed cycle, where sometimes they get greedy and push the prices up and other times they feel generous and lower the prices for no reason. If people would pay more they'd already have set the prices higher...these quangos commenting on it have clearly lowered the quality of their academic hires if they're willing to publish garbage like the article above and the imf's recent piece.
adamsmith143 3y ago
Sorry to burst your bubble but the real market doesn't work like the ones you learn about in Econ 101.
s1artibartfast 3y ago
You are right. There's no way to separate the two. If the headline read consumers now willing to pay twice the price it wouldn't have the same clickbait value
- bbu 3y ago
  > If the headline read consumers now willing to pay twice the price it wouldn't have the same clickbait value that's not how it works though. Inflation affects a lot of goods where you have no choice, you just need it (e.g. food, utilities, housing, transportation).
  - s1artibartfast 3y ago
    Almost all good have a sliding scale for quality and how much you consume. It's not pretty or Pleasant but it's possible. I don't want to in any way sugar coat it, but it's possible. For example people don't need meat or eggs to have a subsistence diet. The fact that they continue to buy those goods at a higher price demonstrates that they are both willing and capable of paying that price before switching to something cheaper like rice and beans

FollowingTheDao 3y ago

Because the corporations are saying it is an increase in costs that are driving higher prices, not demand. And the price curve for things like "eggs" is not being driven by demand.

Matticus_Rex 3y ago
Demand relative to supply. You don't think prices for eggs are being driven by supply and demand?
- FollowingTheDao 3y ago
  I think the profit is not being realized because of supply and demand.
  - Matticus_Rex 3y ago
    Wait, the profit "is not being realized?" That contradicts all of what you're saying elsewhere, no?
pookha 3y ago
I have a hard time believing this is supply-side inflation. Are they saying that multi-national corporations are inflating their own prices so-as to invoke cost-push inflation so that they can profit on the back-end? If that's what the EU is saying (which is what you're implying) than they're insane conspiracy theorists. markets aren't centrally planned processes, especially markets as complex as the EU's. Chances are it's demand side inflation, which is exactly what the US has. The US had a massive recession in 2007 and they inundated corporations with bailouts yet this did nothing to spike inflation. When the US pumped trillions of active currency into the economy they triggered demand-side inflation (https://www.bloomberg.com/news/articles/2022-08-24/demand-surge-was-top-us-inflation-driver-n-y-fed-study-finds https://www.bloomberg.com/news/articles/2022-08-24/demand-su...). How is the EU any different? They too pumped excessive amounts of currency into their markets (https://www.consilium.europa.eu/en/policies/coronavirus/covid-19-economy/ https://www.consilium.europa.eu/en/policies/coronavirus/covi...).
- polygamous_bat 3y ago
  > markets aren't centrally planned processes, especially markets as complex as the EU's. It could be when all the brands are owned by a couple of corporations, which are chaired by a couple of large investment firms. You know for a fact that big tech was doing a no poaching agreement in 2005, but can't wrap your head around the fact that corporations can collude on a price hikes in 2023?
s1artibartfast 3y ago
You picked just about the worst example to make your case. Egg prices Spiked to huge numbers because of large culls of egg laying hens then fell back down. They didn't fall all the way back down because customers are now willing to pay higher prices
- W3cUYxYwmXb5c 3y ago
  no don't you understand, the egg producers just became more greedy for a bit and raked in extra profits, then decided to become less greedy! Get out of here with your important context!

guerrilla 3y ago

You can look at plenty of markets where there is no increased demand. Food is an obvious one. Also as other people have pointed out, it's not like they're hiding it.

throwaway173738 3y ago
The price of a pound of oats at the regular grocery store has trebled over the last year to 5.00/lb. Meanwhile if you buy them in 25 lb bags at Cash and Carry they’re less than 80 cents a pound. Someone is gouging like crazy.
- jimbokun 3y ago
  Then go to Cash and Carry to buy your oats?
  - guerrilla 3y ago
    You're moving the goalpost. The point was establish whether price gouging is occurring. We did that.
- pookha 3y ago
  The producer price index in the US was at 118 in 2020. It shot up to 140.72. In the US that corresponds to the producer having less purchasing power which directly ties into our consumer price index and the raw costs of goods. At one point the producer-side inflation was WORSE. Businesses were loosing their asses in the US. it wasn't "price gouging". https://ycharts.com/indicators/us_producer_price_index https://ycharts.com/indicators/us_producer_price_index
randomdata 3y ago
Food is down 20-40% over last year and the only thing still propping it up as much as it is surrounds concern over the US midwest drought. Indeed, consumer buying lags production, but it is only a matter of time.
- 3y ago

mattbrewsbytes 3y ago

You can't compare prices and profits. Increased demand and short supply can cause prices to rise. Prices. Not Profits. Profits are typically after costs of selling goods/services. If pandemic caused various factors to cost a lot more and that cost was passed onto consumers at a similar rate as in the past then profits should remain same-ish. Its possible and logical that companies raised prices during the pandemic due to some cost increase (parts, shipping, etc.) and then never lowered prices even though that cost increase faded away. If over a long period of time there has been consolidation (aka acquisitions) in an industry and there are only a few conglomerates around, they essentially have a market to themselves and can do what they want without actually legally being considered a monopoly.

s1artibartfast 3y ago
Increase demand in short supply can absolutely cause profits to increase. If people are willing to pay more, you expect profits to climb.
- Matticus_Rex 3y ago
  People are downvoting this, but this is really basic stuff with tons of empirical grounding.

randomcarbloke 3y ago

people seem to think there is a corporate generosity/corporate greed cycle, where sometimes they get greedy and push the prices up and other times they feel generous and lower the prices for no reason. If people would pay more they'd already have set the prices higher...these quangos commenting on it have clearly lowered the quality of their academic hires if they're willing to publish garbage like the article above and the imf's recent piece.

adamsmith143 3y ago

Sorry to burst your bubble but the real market doesn't work like the ones you learn about in Econ 101.

s1artibartfast 3y ago

You are right. There's no way to separate the two. If the headline read consumers now willing to pay twice the price it wouldn't have the same clickbait value

bbu 3y ago
> If the headline read consumers now willing to pay twice the price it wouldn't have the same clickbait value that's not how it works though. Inflation affects a lot of goods where you have no choice, you just need it (e.g. food, utilities, housing, transportation).
- s1artibartfast 3y ago
  Almost all good have a sliding scale for quality and how much you consume. It's not pretty or Pleasant but it's possible. I don't want to in any way sugar coat it, but it's possible. For example people don't need meat or eggs to have a subsistence diet. The fact that they continue to buy those goods at a higher price demonstrates that they are both willing and capable of paying that price before switching to something cheaper like rice and beans