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For those wondering if it's truly representative, it's estimated that 50% of the inflation in Europe is due to margin increase not bc of the inflation itself.

• oneTbrain23 3y ago
  Mostly due to supporting American stand of sanctioning Russia for Zelenskyy and partially sanctioning Chinese companies. In short, they did it to themselves. As for their citizens, I would say they are getting what they voted for (or didn't do any unalivement when some of those voted leaders betrayed their interest).
• hcks 3y ago
  Inflation manifests itself as margin increases. There’s too little goods being produced for too much people having money. Therefore the people selling goods can raise prices. For some reason people assume that workers can’t be left worse off with inflation bc they assume wages have to increase to follow it. It doesn’t have to be the case. In Europe, workers are becoming poorer.
• NickM 3y ago
  Supply constraints typically lead to higher prices and higher margins. The fact that the margins have gone up does not somehow imply that the higher prices are something other than inflation.
  • eddtests 3y ago
    Why does it cause such higher margins?
    • psychoslave 3y ago
      Because the middle man typically see there an opportunity to extort more money?
    • Miraste 3y ago
      The rather soulless economics answer is that the companies want to make the same profit as before the inflation, so they need higher margins on individual sales to make up for the reduction in volume. Since demand doesn't drop, this is a feasible strategy.
      • vkou 3y ago
        That answer doesn't make sense, because surely, companies want to increase their profits regardless of whether inflation is happening or not. The real answer is that when inflation is happening, it provides an easy excuse for raising prices far beyond the cost of your inputs. Everyone expects prices to go up, so they don't balk at yours going up faster than inflation.
        • Miraste 3y ago
          The idea is that the company normally prices their products at the intersection of supply and demand, where there is maximum profit. When supply is artificially constrained, they raise prices to the corresponding spot on the curve. This is not as profitable as before, but it's the new local maximum. It's one of those simple macro-econ models that sound good, but never play out in real life because humans aren't calculators. The reality is a mix of both, probably more of your explanation.
    • WalterBright 3y ago
      It takes a while for the river of money helicoptered into the economy to spread its inflation out evenly.
      • eru 3y ago
        That theory only works if people are morons who can't anticipate long expected (price) developments.
    • Retric 3y ago
      Supply drops mean price increases. Goods have multiple inputs but don’t see equal increases across the board. Ie rent isn’t going up in a grain shortage. Critically higher profit margins doesn’t necessarily translate to higher profits because you’re selling fewer goods.
    • gwbas1c 3y ago
      Because a lot of companies are using "inflation" as an excuse to raise prices. Remember, prices generally are a function of the cost the market will bear. If the general public will pay more for something, why not rise the price? If everyone is rising their prices at the same time, you have less pressure to compete on prices.
    • bluesign 3y ago
      Imagine you buy for X, and sell to some supermarket for Y, and they pay you in T time. Optimum Y is not related to X, but the price when you replace the stock. ( let's say X2 ) When supply has problems, or economy is unpredictable, it is harder to predict X2, so usually your estimation is a bit off. So you have to have bigger margin to cover for this estimation error. ( assume the worst )
      • throwaway019254 3y ago
        So they increase margin to cover for uncertainty and incorrect estimations. And in case the original estimations were right, the higher profit is just unintended consequence.
        • AstralStorm 3y ago
          Since it's not market optimal, after they note the extra profit, why don't they lower the prices or hire more workforce or expand? Or at least share the windfall with employees indirectly boosting the economy total, including their own position? (Yes, equilibrium economics is a joke even when law of big numbers is involved.)
    • deleted 3y ago
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  • vasco 3y ago
    Temporarily and in a localized way, yes. For example, if there's a natural disaster, and the people in power aren't dumb, they'll let prices float instead of putting caps in place, and everyone will be incentivised to rent big trucks full of water bottles and sell it for 20-50x the normal price. For the affected people it makes sense because now they can drink water, and if the prices were controlled nobody would make the drive. Eventually enough people do the drive or the disaster passes and prices normalize. At the moment it's hard to explain what is happening but it might be more complex than just "nothing to see here". I've come to realize that reality is more nuanced than Milton Friedman made it out to be (and he did too later in life).
    • true_religion 3y ago
      I guess all people in power must be dumb because every county has laws against grifting necessary essentials in a natural disaster. It’s possible your point does apply to normal price shifts when supply for something like electronics becomes constrained but right now your example detracts from understanding that.
      • lobocinza 3y ago
        > I guess all people in power must be dumb Some are smart psycopaths. The issue isn't dumb in power but dumb people voting. People get outraged by price gouging so populists create laws against it. Even though those laws don't make economic sense they make political sense. Most of the time IMO state agents will just ignore price gouging because they know it is a necessary evil but if the need arises they can always intervene in prices, say they are doing something and save face. But this destroys the economy if done often. It's not black and white.
        • true_religion 3y ago
          I think it makes more economic sense for the government to directly subsidize necessities by shipping them in and controlling the price or giving them away for free. This is what FEMA does in the US. What does not make sense is a world where people have to buy disaster issuance just to make sure they can afford water when a hurricane strikes.
  • tommiegannert 3y ago
    From my perspective, you're saying the same thing as the parent: both prices and margins have gone up. Then you're stating the definition of inflation. Parent's comment was (implicitly) about 50% of this inflation being avoidable and thus surprising, because margins didn't necessarily have to go up to keep business going. It was just a seized opportunity. If you can show that margins unavoidably always go up during inflation because of some fundamental mechanism, then that would be a refutal of the parent argument.
    • deleted 3y ago
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    • marcosdumay 3y ago
      Margins almost always increase anyway. I'm not sure anybody fully understands the mechanism (for the most studied phenomenon of economics, inflation is quite badly understood), but that doesn't change the fact. Anyway, if you run the Keynes model for macroeconomics, the average margin increases very naturally when the money supply increases. It increases even more if the new money is injected in the economy by well distributed government spending. Still, that's one model we have that kinda works, but it's so full of problems that you can't take its predictions for granted.
  • jahewson 3y ago
    From the original article: > consumer goods companies are not cooperating in efforts to cut the price of thousands of staples despite a fall in the cost of raw materials.
• josu 3y ago
  Do not buy into that narrative. This inflationary process has been mostly driven by monetary policy. Margin increases are the result of businesses trying to navigate an inflationary period. These margin increases are not resulting in increased profits across the board (there are some notable exceptions). For example, Carrefour's profits in 2022 were about the same as in 2019. [1] From the article you linked: "Profits (adjusted for inflation) were about 1 percent above their pre-pandemic level in the first quarter of this year." [1] https://finance.yahoo.com/quote/CA.PA/financials?p=CA.PA https://finance.yahoo.com/quote/CA.PA/financials?p=CA.PA
  • winter_blue 3y ago
    Canadian retailer profits have been off the charts, fwiw. Inflation has been quite brutal and merciless in Canada, with retail chain owners fat extra paychecks in the tens or hundreds of millions.
  • rocgf 3y ago
    I am amazed to finally see a comment like yours, I've argued this point in various contexts and I was treated like I am crazy.
  • m000 3y ago
    > Do not buy into that narrative. ... Carrefour's profits in 2022 were about the same as in 2019. Isn't this exactly why we should buy into this narrative? The manufacturers increased their margins, so Carrefour sells more expensive, but in the end gets the same total profit.
    • deelowe 3y ago
      The parent is saying that these "increase in margins" are companies trying to get ahead of inflation. The media narrative has been to blame the corporations, despite the real issue being the economy. There are elections to worry about, so we can't have that. Smart businesses don't wait until they start losing money to make adjustments. They plan ahead. These "margin increases" are literally increases due to inflation which will companies expect to take hold over the next 1-2 years. There could be a variety of factors for this. One such example is corporate bonds rolling over to new interest rates which are expected to start happening en masse very soon.
• pid-1 3y ago
  Why there was no inflation in the past decades? Did companies used to be generous?
  • ceejayoz 3y ago
    Companies didn't have a single easy worldwide excuse that people would readily accept for big price hikes. "Oh, it's because of the pandemic" was not a PR strategy available in 2010. See also: 9/11 and various civil liberties.
    • pid-1 3y ago
      ??? Unless you're in a highly regulated sector like energy or healthcare, in most countries you don't need an excuse to hike prices. Again, the "prices are higher cuz corporate greed" logic fails to account the basic fact that companies are always profit maximizing and no relevant legislation related to corporate profits was passed in most countries. If they can increase prices without losing customers, they will. So, again, what has changed? Search for the balance sheet of your local central bank and you will have an answer.
      • ceejayoz 3y ago
        I think you’re confused between legal and public relations. The grocery store can legally double the price of bread absent any good reason, but people will flip out. They didn’t flip out when that exact thing happened during the pandemic, because “it’s the supply chain” made enough sense to people they accepted it. The pandemic gave them a new way to “increase prices without losing customers” for a while.
• enoch_r 3y ago
  This argument is completely incoherent. You can't study the cause of inflation by looking at the distributional effects of inflation. For example, in 2020 there was a huge increase in demand for used cars, and the price of used cars increased by ~40% within a few months. But people who sold used cars did not have their costs increase - they were, after all, selling an already completed product. The IMF would therefore estimate that between 2019 and 2020, ~100% of inflation in used car prices was due to margin increases rather than inflation itself. This is obviously silly - the increase in prices was because there were too many buyers and too few cars, not because the owners of used cars suddenly because significantly more greedy overnight. It's the same with corporate profits. Inflation has distributional effects which are interesting to study, but we shouldn't confuse ourselves by claiming that the effects are actually the causes.
  • arcticbull 3y ago
    That's not necessarily true, over the last few years we saw that companies were able to begin pushing prices to increase margins and profits on the same volume of goods instead of manufacturing more goods and making the profit on volume. Some of the margin increase was due to real supply constraints, but not all of it. For instance, when Coke and Pepsi lost ~4% of their global sales by abandoning the Russian market, they just raised prices everywhere else to compensate, because they could, and people were willing to pay. Now moving forward, they seem to be losing their ability to push prices. My point is not all cost increases were due to real constraints - they were in the auto sector, but that's not true of all sectors. If I know this, I suspect the IMF does too, and incorporated that into the report.
  • yunohn 3y ago
    Your comment also seems incoherent. You’re comparing the concept of economy-wide inflation with the basic supply-demand economics for one item.
  • anigbrowl 3y ago
    It's the same with corporate profits. LMAO no. It's foolish to equate an individual selling a single asset like a car with businesses that can range from little niche supply workshops up to dominating whole industries. Pure laws of supply and demand only hold true under conditions of perfect competition, and much of what we call 'business' is about playing the meta-game - out maneuvering competitors financially, creating moats and other barriers to entry to keep competitors out of a market sector, using marketing to maximize product differentiation and shape consumer perception, leveraging regulatory complexity in one's favor or lobbying for it to be reduced in order to gain some cost advantage. Real world markets are a lot more complex than the little toy ones used to explain fundamental economic concepts.
• JumpCrisscross 3y ago
  > it's estimated that 50% of the inflation in Europe is due to margin Is this just constant margins being spun as conspiracy? Say I have a 10% margin on a $100 product. Costs rise 10%, i.e. to $99. If I want to keep a 10% margin, I raise prices to $110. How much of that price rise was inflation versus margin increase? Will someone now claim that 90% of cost rises were due to inflation and 10% margin? (Keep in mind, too, that inflation is forward looking.) Put another way, how enviable have manufacturers’ margins in Argentina, Turkey or Zimbabwe been?
• wholesomepotato 3y ago
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