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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

#151

Post by naasking »

Aunche wrote: post #115
zmmmmm wrote: post #21

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 competi…

>Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation There are only 3 ways to decrease inflation: - Interest rates - Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overa…

> Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overall inflation much, if at all.

The necessity of rationing assumes that demand is outstripping supply. That's not the case when corporations are price gouging. Egg farms are not selling more eggs than ever before, nor would they if prices were exactly what they were before COVID.

Furthermore the harmful side effects of price controls are often exaggerated. Again, egg farmers are not going to suddenly just kill all of their chickens and switch to building datacenters because we only implemented price controls on necessities like food. Nixon's price controls went fine, as but one example.

Finally, your solution of raising rates does not decrease the need for basic staples like food, so it's not a solution at all. Who cares if inflation for Tesla's or SUVs are at 8% or higher, that's a rich person problem. What matters is the inflation for necessary goods and services, like food and shelter, and your suggested "solution" doesn't really solve anything. All it does is maybe put people who need the money out of work.

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

#152

Post by Khaine »

hackerforever wrote: post #109
Khaine wrote: post #107

Earlier quoted context omitted.

But record profits is non-sense. Profit goes up with inflation in nominal terms, so you need to compare real terms. From the article you pointed to: 'Mr Kierath said it was important to note the companies' profits fell in the last six months of 2021, so these results were rebounding off an unusually low base.' Ergo, they look good because they were depressed in the prior reporting season. Ergo, it's just corporations…

This isn't convincing, why should company profits be immune from inflation but wages stagnate and fall below the rate of inflation as has happened this year? Corporations bashing is definitely warranted in this case.

Because companies are profit making entities? They are going to do what they need to, to make a profit. Which is why when inputs rise, they typically pass those costs on to consumers. You will note that Dominos share price fell by ~30% because they noted that demand had been down as they tried to pass on the increased cost of inputs.

If you are an investor, you will want a return on your capital. Would you invest in a business, where the return is lower than what you can get in a bond? If your profits fall too far, unless you can convince investors that its temporary, they are likely to withdraw their funds, and then your business will end.

Prices are also less sticky than wages which means they rise and fall in response to supply and demand, whereas wages are more sticky.

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

#153

Post by naasking »

gruez wrote: post #127
stephen_g wrote: post #120

Earlier quoted context omitted.

In Australia businesses like supermarkets, banks, the largest airline etc. have just announced huge profits in their latest reports. I think the report definitely could have been better written, because a lot of the inflation is more due to passing on external cost increases, or domestic businesses raising their prices to account for inflation, and all keeping the same margins, hence resulting in larger profits in no…

> In Australia businesses like supermarkets, banks, the largest airline etc. have just announced huge profits in their latest reports. As someone who isn't from Australia, can you provide some actual figures, preferably with historical comparison? Without specifics "record profits" doesn't mean much. The most banal interpretation is that profits in nominal dollars went up, which is totally expected given that the eco…

I won't speak to Australia, but Rep. Porter did a decent job of that here:

https://youtu.be/udITRL9-t08

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

#154

Post by refurb »

Nursie wrote: post #130
refurb wrote: post #77

Earlier quoted context omitted.

Calling expansion of the monetary supply and the resulting inflation "bunk" is hilarious. There are so many examples of inflation driven by monetary policy (Germany in the 1930's, Argentina, Venezuela, Vietnam) that denying the impact of money supply is just burying your head in the sand.

Who’s denying the impact? The post I replied to said it was the only reason, which is a load of bull. I explicitly said it’s a factor in a complex system.

The wage-price spiral is a mechanism for inflation. But the cause of inflation in the first place is the monetary expansion.

You can't have a wage-price spiral without excess money to drive the higher prices and wages.

It's the difference between the source of the fire (fuel + ignition source) versus the propagation of the fire (combination of oxygen + fuel).

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

#155

Post by BigJono »

chii wrote: post #140
theteapot wrote: post #137

Earlier quoted context omitted.

> australian taxation is already one of the highest in the world. Where did you pull that from?

https://wisevoter.com/country-rankings/highest-taxed-countri... Specifically i'm gonna call out income tax in australia : Income Tax Rate 45% Ranked in the World #17 > ... This means that Australians are paying a larger share of their wages in taxes compared with other countries.

That site literally gives the overall tax rate as 28.68%, 42nd in the world. The US is 53rd, and the UK is 29th.

The single figure of 45% is the highest tax bracket, which only starts at $180,000/year. Australia has a higher minimum wage than most countries, so a large proportion of the population are in minimum wage jobs. People on minimum wage here make ~$40k/year and pay around 14% tax.

Not that any of that really matters if you're talking about government spending, since the overall tax rate is what determines government income, not what any individual person is paying.

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

#156

Post by naasking »

Khaine wrote: post #150
stephen_g wrote: post #120

Earlier quoted context omitted.

In Australia businesses like supermarkets, banks, the largest airline etc. have just announced huge profits in their latest reports. I think the report definitely could have been better written, because a lot of the inflation is more due to passing on external cost increases, or domestic businesses raising their prices to account for inflation, and all keeping the same margins, hence resulting in larger profits in no…

so lets look at this closely: Banks - banks make more money when rates are higher, as they can get a bigger spread between what they offer savers and borrows. CBA, Australia's largest bank has a net interest margin of 2.1%. This means that the difference between the cost of interest paid to savers, and that borrows pay is 2.1%. This 2.1% covers all of the expenses and profit the bank makes. Banks make obscene amounts…

> Qantas has raised prices to ensure the flight demand meets what it can supply.

This is weasly language for "price gouging". There's literally no problem with Qantas just selling the seats they had at reasonable prices and then saying, "sorry, no more seats available".

Instead, you're trying to portray it as totally natural and just that they take advantage of any circumstances to squeeze as much out of their customers as possible.

Market-think has perverted your worldview. The people tolerate markets because they generally serve the common good via innovation, competition and self organization. When the market deviates from that objective, like by price gouging to enrich a few at the expense of the public, it is right to criticize and correct it, not try to justify that the market is right and the common good is wrong.

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

#157

Post by theteapot »

chii wrote: post #140
theteapot wrote: post #137

Earlier quoted context omitted.

> australian taxation is already one of the highest in the world. Where did you pull that from?

https://wisevoter.com/country-rankings/highest-taxed-countri... Specifically i'm gonna call out income tax in australia : Income Tax Rate 45% Ranked in the World #17 > ... This means that Australians are paying a larger share of their wages in taxes compared with other countries.

Nice try. 1. Income tax is just kind of tax. 2. 45% is the highest tax tier in a 5 tier system, paid on every dollar over $180K. 3. The same site you got "#17" from says Australia is ranked #42 the World for an overall "tax burden" statistic ...

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

#158

Post by Khaine »

naasking wrote: post #156
Khaine wrote: post #150

Earlier quoted context omitted.

so lets look at this closely: Banks - banks make more money when rates are higher, as they can get a bigger spread between what they offer savers and borrows. CBA, Australia's largest bank has a net interest margin of 2.1%. This means that the difference between the cost of interest paid to savers, and that borrows pay is 2.1%. This 2.1% covers all of the expenses and profit the bank makes. Banks make obscene amounts…

> Qantas has raised prices to ensure the flight demand meets what it can supply. This is weasly language for "price gouging". There's literally no problem with Qantas just selling the seats they had at reasonable prices and then saying, "sorry, no more seats available". Instead, you're trying to portray it as totally natural and just that they take advantage of any circumstances to squeeze as much out of their custom…

That's what markets do, they co-ordinate supply and demand. If you can't raise prices to ease demand, what do you do?

That extra money they are making, is then used to invest in more planes, and crew to staff more flights to serve more customers/

You can't have capitalism, without both sides of that coin. That's how markets work.

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

#159

Post by Nursie »

refurb wrote: post #154
Nursie wrote: post #130

Earlier quoted context omitted.

Who’s denying the impact? The post I replied to said it was the only reason, which is a load of bull. I explicitly said it’s a factor in a complex system.

The wage-price spiral is a mechanism for inflation. But the cause of inflation in the first place is the monetary expansion. You can't have a wage-price spiral without excess money to drive the higher prices and wages. It's the difference between the source of the fire (fuel + ignition source) versus the propagation of the fire (combination of oxygen + fuel).

Yeah nah, there’s that alt economics we were talking about.

There are multiple causes, money supply is only one of the factors at play. Using your fire example, there are three factors, miss any one of them, no fire.

Choosing then to blame a single factor is … well it’s just wrong.

And that’s if we grant your fire analogy as valid in the first place.

Regardless of the above - conflating monetary supply inflation with general inflation is a favourite meme among the Austrians, they aren’t the same thing. Austrian economics (usually beloved of libertarians) is an idealogical, rather than descriptive, school of thought.

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

#160

Post by jackvalentine »

Aunche wrote: post #115
zmmmmm wrote: post #21

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 competi…

>Most of it goes to the lie that is the premise that interest rates are really the optimal way to control inflation There are only 3 ways to decrease inflation: - Interest rates - Price controls. This tends to have a lot of harmful side effects, such as the necessity of rationing and discentivizing the production of whatever you're price controlling. You only really do this for a few goods, so this doesn't help overa…

Could allow the reserve bank to change the mandatory rate of retirement savings in Australia - currently 10.5% of their wages.

It'd have the same effect as interest rate rises in removing consumer demand without the kinda icky feeling of just sending that money to the income statement of a bank as mortgage payment increases.

Obviously not a silver bullet, but perhaps another tool to make available.

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