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

theguardian.com

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

#31

Post by Fervicus »

refurb wrote: post #25
Fervicus wrote: post #20

Same thing happening in Canada https://www.theglobeandmail.com/business/article-loblaw-earn...

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 c…

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.

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

#32

Post by thundergolfer »

JumpCrisscross wrote: post #28
Grimburger wrote: post #22

Earlier quoted context omitted.

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.

> Australia Institute is a thinktank, funded by the Greens Source? If true, this doesn’t belong on HN.

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?

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

#33

Post by JumpCrisscross »

cjbgkagh wrote: post #24
geoduck14 wrote: post #14

Earlier quoted context omitted.

The banks are only allowed to loan a certain amount. The department that prints mone6 is the same department that regulates how much can be lent by all banks (in the US), so it is the same type of "creating money" as printing money is. And is accounted for when calculating "how much money is in circulation"

It's called a reserve requirement ratio (RRR), the bank must hold a certain percentage of loans as cash. It's mostly a closed loop due to rehypothecation so money supply is proportional to RRR. It keeps getting cut and it's one of those expansionary policies you tend not to hear much about. It's been a long time since I paid attention to it but I think there was talk of using cash equivalents instead of just cash at…

Australia hasn’t had a reserve requirement since the late 80s. They’re largely been phased out globally in favour of capital requirements and open-market operations.

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

#34

Post by cjbgkagh »

Manuel_D wrote: post #8
pmontra wrote: post #6

Earlier quoted context omitted.

Central banks have been printing money for years (quantitative easing, "whatever it takes" , etc) and there was no inflation.

But the money supply was kept roughly in line with the growth of the economy. Inflation only occurs if the total money supply grows faster than the economy. There's some nuance over how much money is actively being spent vs sitting in savings, but the broad strokes of it is economic output divided by money supply.

Only because money velocity fell off a cliff, money velocity is one of the multipliers that goes into the apparent quantity of money as the same dollar is used more often. Given the asset bubbles due the printing people are incentivized to invest into it so long as the bubble continues to grow (or at least not shrink) people are incentivized to keep holding. So you can keep printing money without seeing inflation so long as asset bubbles can soak it up and money velocity drops. Now when the reverse happens, which will happen eventually even if it takes a very long time, that is when you get inflation.

So paradoxically increasing the base money supply enough to generate asset bubbles has a deflationary effect.

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

#35

Post by [deleted] »

thundergolfer wrote: post #32
JumpCrisscross wrote: post #28

Earlier quoted context omitted.

> Australia Institute is a thinktank, funded by the Greens Source? If true, this doesn’t belong on HN.

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]

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

#36

Post by firecall »

chrishare wrote: post #11

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 adve…

All very good points!

We've had wage stagnation for ~15 years. I've long wondered what it is about our job market that keeps wages down whilst company profits continue to grow. Perhaps an unspoken collusion around wages, or maybe lack of salary growth in government jobs that in turn pushes the private sector.

Lack of competition and choices is another issue, as is Australia's dispersion of cities. It's not straight forward for someone in Adelaide to take a job in Sydney that pays more. Workforce mobility certainly pays a part.

When I lived in the UK, I took it for granted that you could commute to another major economic City for work, especially in the South.

Because of wage stagnation, I see a major debt crises looming with BNPL and its old friend the credit card.

It's a house of cards. Taking on more BNPL debt that is serviced with credit-cards is going to become a huge problem for Australians.

I see a lot of people in my community that appear to be doing OK, but with mortgages that gone up over $1000 a month.

People have little savings and live month to month, spending everything they have.

Changing lifestyle and spending patterns doesnt come easily to people, and I see it as the slow boiling frog problem. They'll maintain their current lifestyles because they dont realise the spending and credit problem they have.

Where is the extra money coming from to service their mortgages?

Well, it's credit cards and BNPL. Which will slowly grow until they are in trouble. Maxed out limits on multiple BNPL schemes backed by multiple maxed out credit cards is going to create crippling debt levels.

It may take 18 months to manifest, but I'm sure it will.

I already know that many people in my community carry credit card debt month-to-month and I cant see how this is going to improve.

It's not just those with Mortgages that are in trouble. Renters will be in serious trouble too as all those investment property mortgages have gone up too. Which means huge increases in weekly rents are starting to appear. The Australian subreddits are filled with irate renters.

Just getting my thoughts down, and anything could happen I guess! :-)

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

#37

Post by opportune »

Aunche wrote: post #17

Here is the "analysis" in question: 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 poli…

I’m a formerly-hardcore (now kinda softcore) leftist and it bothers me to no end when leftwing parties ignore the huge body of economic research/literature/education in market economies to try to push some agenda.

A profit-price spiral makes no sense as a concept without widespread collusion. Let me phrase what they are observing in a way that is actually based in market economics: when the monetary supply increases without actual productive increases in supply (due to things like QE, dovish monetary policy, stimulus) it leads to inflation. Inflation in both wages and good/services prices is not uniform - if you gave every billionaire $100mm you would see different effects than if you gave every person $1k.

What we’ve seen in a lot of economies is that inflation lately has shown up very quickly in consumer goods. You cannot necessarily increase the supply of consumer goods quickly - the supply is inelastic in the near term, especially since unemployment is low. As a business, if you are constantly running out of the supply of some good priced at $X it’s a pretty sure sign your prices are too low and you’re leaving money on the table - so business raise prices on those goods. And with very low unemployment rates, businesses cannot easily drive those profits into expanding their business because it’s hard to hire new people.

Of course, these business have also had to pay employees more and pay more for the goods they sell. But if the market price increases outpace those increases you get profits, and with low unemployment, those profits have nowhere to go except shareholders (or maybe M&A). The businesses would not just pay their workers more because they don’t know what to do with their profits - the entire reason they started a for-profit business was for profit so it’s fairyland thinking that the money would go anywhere else.

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

#38

Post by cjbgkagh »

JumpCrisscross wrote: post #33
cjbgkagh wrote: post #24

Earlier quoted context omitted.

It's called a reserve requirement ratio (RRR), the bank must hold a certain percentage of loans as cash. It's mostly a closed loop due to rehypothecation so money supply is proportional to RRR. It keeps getting cut and it's one of those expansionary policies you tend not to hear much about. It's been a long time since I paid attention to it but I think there was talk of using cash equivalents instead of just cash at…

Australia hasn’t had a reserve requirement since the late 80s. They’re largely been phased out globally in favour of capital requirements and open-market operations.

Huh, indeed. I found this on the RBA website.

"The Reserve Bank’s reserve requirements are not a Required Reserve Ratio (they are not set as a percent of the financial institution’s liabilities). The Reserve Bank’s reserve requirements are set annually as an AUD amount per financial institution with the aim of ensuring that each institution has sufficient funds to settle AUD transactions after business hours. The amount is set taking into account the historical pattern of each institution’s AUD transactions."

Is there any information on what those figures are because it's kind of important when calculating money supply? If not the RBA could 'print' large amounts of money and not tell anyone.

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

#39

Post by notahacker »

Aunche wrote: post #17

Here is the "analysis" in question: 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 poli…

If we assume what a "profit-price spiral" is by analogy to "wage-price spiral" it has an obvious theoretical problem.

Wage price spirals happen because [when the economy is operating near short term capacity], when the cost of living goes up, workers are able to demand and get more money, but that in turn leaves all firms incentivised to put their prices up some more. On the other hand, when prices go up, profits go up... and then firms don't really have any incentive to put their prices up any more because most of that profit isn't finding its way into their customers' pockets (that's a reason for Australians to be concerned about the welfare implications, but it isn't a "spiral"). Companies don't index their prices to average profit levels either. I guess second order effects could include B2B companies and companies selling luxuries to recipients of executive bonuses and massive dividend payouts putting up their prices, but I'm not sure you get an economy-wide "spiral" from that in theory or practice...

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

#40

Post by opportune »

Fervicus wrote: post #31
refurb wrote: post #25

Earlier quoted context omitted.

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 c…

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.

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.

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