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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

#201

Post by candiodari »

rcme wrote: post #162
naasking wrote: post #147

Earlier quoted context omitted.

They wouldn't lose sales on necessary staples like eggs, milk and such, all of which have seen significant increases.

Demand for milk and eggs is definitely elastic. And we're seeing inflation in other goods that aren't staples as well.

Not at the price points they're at. If milk halved in price, would milk consumption significantly rise? Not at all.

So yes, milk consumption is price elastic, but not at these prices. They're too low.

Same goes for eggs, bread, ...

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

#202

Post by makomk »

jay_kyburz wrote: post #197
monero-xmr wrote: post #171

Earlier quoted context omitted.

If there is 1000 units of something but demand for 5000 units, you increase the price until demand equals 1000 units. There is no conspiracy. This is fundamental economics. “Market-think” is about freedom. The alternative is “authoritarian-think” and that always ends in tears. Just start setting prices by government decree and see what happens.

In the case where products can be profitably produced at a cheaper price, the people should band together, put aside the market system, and produce all 5000 units. More people are served. If its costs $100 to fly somebody from Sydney to Melbourne and Qantas is selling tickets for $1000, Australians should run an airline and sell tickets for $200. Governments should get into the business of keeping markets competitive…

Even in an ideal world where there's no fundamental difference in the cost of producing 1000 units or 5000, companies aren't going to be able to sell 5000 at the same price as they could 1000 when doing so exceeds their current capacity. Expanding that capacity means more staff and equipment, which costs money that has to be paid for somehow. It also takes time, which means that it cannot act as an immediate solution to the cost problem and also that there's substantial risk involved - by the time the extra capacity is there, the demand may not be. In order to justify taking on this risk there needs to be the expectation of substantially higher profits.

Also, commercial airlines in particular are an industry with a history of over-optimistic expansion followed by cut-throat competition on pricing and then bankrupcy, and I'm pretty sure everyone in the industry knows this by now which is why there's not a huge rush to expand massively.

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

#203

Post by drekipus »

js8 wrote: post #165
Aunche wrote: post #115

Earlier quoted context omitted.

>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…

Not true, you can also (selectively) increase taxes to take out excessive money supply. In the case of profit-driven inflation, you could tax excess profits.

That doesn't take money out from supply

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

#204

Post by mattwilsonn888 »

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…

Appreciate you taking the time to write this.

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

#205

Post by makomk »

thomjrob wrote: post #121
Khaine wrote: post #110

Earlier quoted context omitted.

This doesn't belong on HN, because its garbage analysis. From their 'analysis': "Record profits on petroleum and mining activities (reinforced by a spike in global oil and gas prices following the invasion of Ukraine) led this surge, but the overall corporate sector experienced the most rapid growth in profits of any comparable period in 35 years." So because of global shortages, commodity prices reached record highs…

"There are shortages, but if everything remains the same, they make more money" ??? That's a whack thing to say with a straight face.

It really isn't, publications like the Guardian have just misled people about how the economy works and why corporations make profits in situations like this. It's basically a direct consequence of two things: people cannot buy stuff unless it's actually available to buy, and money does not disappear when it's spent. This means that when there's not enough stuff available to buy, everyone bids up prices until demand meets supply again, with the money ending up as profits at whatever parts of the supply chain are most constrained. This is a perfectly reasonable place for it to end up: those companies are actively helping make the problem less bad by existing and investing in production at the level they did, it incentivises more such investment, and - most importantly - limiting corporate profits and price increases cannot prevent people from becoming worse off in real terms because the amount they buy is still limited to what's actually being produced.

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

#206

Post by lifeisstillgood »

js8 wrote: post #165
Aunche wrote: post #115

Earlier quoted context omitted.

>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…

Not true, you can also (selectively) increase taxes to take out excessive money supply. In the case of profit-driven inflation, you could tax excess profits.

This (being a MMT model). It's interesting to compare the phrase above something like "good inflation control is to grow the economy to match [the amount of money in the economy]"

whereas just removing the money would also work.

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

#207

Post by drekipus »

PYTHONDJANGO wrote: post #194
Khaine wrote: post #112

This is absolutely garbage, and doesn't belong on HN. From their 'analysis': "Record profits on petroleum and mining activities (reinforced by a spike in global oil and gas prices following the invasion of Ukraine) led this surge, but the overall corporate sector experienced the most rapid growth in profits of any comparable period in 35 years." So because of global shortages, commodity prices reached record highs, a…

Please explain how "the market" does set a price. Please do not do that in a symbolic, abstract way, please describe based on facts who writes a number into a computer that will be the price. How does this happen? Do you believe that there is a mythical "market" entity that "creates prices"? Then please explain how it works. Thanks!

> please describe based on facts who writes a number into a computer that will be the price.

The person selling the goods, with a limited but sole-focused understanding of the competitors, stock coming in, stock going out, and forecasting does the best job he can to set the price that maximizes his individual profits

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

#208

Post by hgomersall »

refurb wrote: post #190
hgomersall wrote: post #176

Earlier quoted context omitted.

Except that the evidence shows that money supply increase doesn't necessarily lead to inflation. Countries that go through hyperinflation always have a systematic underlying problem that they use money creation to try to fix. "Ah ha!" declare the monetarists, "evidence for our assertion that money supply is the cause of inflation", conveniently ignoring all the counter examples. The point of the GP post is that compe…

Thats a terrible article. The example of oranges going up in price and apples down is not inflation. Inflation is an overall erosion of buying power. When oil prices rise that’s not inflation, although prices might rise.

Apples and oranges were just an example to illustrate the problem with the CPI, which is what most people mean when they say "inflation", after which the US CPI is used extensively, including lots of historic data on variance. I can only conclude you didn't read the whole article or you're making a rhetorical point in lieu of an argument because the conclusions are uncomfortable.

I actually agree that price rises like oil are not really inflation - what Keynes would call semi inflation. Regardless, oil price rises were not due to money supply and the subsequent monetary shenanigans are just economic theatre (and even that is being questioned at the inner sanctum: https://www.federalreserve.gov/econres/feds/files/2021062pap... )

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

#209

Post by rybosworld »

drekipus wrote: post #203
js8 wrote: post #165

Earlier quoted context omitted.

Not true, you can also (selectively) increase taxes to take out excessive money supply. In the case of profit-driven inflation, you could tax excess profits.

That doesn't take money out from supply

Yes, it does.

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

#210

Post by pas »

naasking wrote: post #151
Aunche wrote: post #115

Earlier quoted context omitted.

>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 se…

Hungary tried price controls when this inflation cycle started. It still has some in effect.

Hungary has more than two times the inflation of the EU average. The highest in the EU.

Price controls on flour and gas/petrol led to people buying a lot more compared to supply. This led to gas stations closing. People started baking more, but price of bread exploded because folks bought flour and bakeries were in a tight spot (I don't remember the exact chain of events).

Of course grocery shops increased the price of everything else relatively to make up for the loss on the controlled items.

Clearly, tackling inflation should be independent from providing basic necessities like food and shelter and healthcare.

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