Why is inflation so sticky? It could be corporate profits • Hacker News Board

Re: Why is inflation so sticky? It could be corporate profits

#151

Post by andrekandre » Wed, May 03, 2023, 9:31 AM UTC

vinyl7 wrote: post #41

rhaway84773 wrote: post #22

Earlier quoted context omitted.

And yet despite 15 years of stimulus we have had persistently low inflation for all except the last 2 years or so, the first half of which was very clearly driven by supply chain issues. It’s almost like even if stimulus has had an impact it’s not the only, or even the primary driver.

We've had inflation. Inflation was in assets rather than in commodities. Housing is insane, the stock market is detached from reality, billion dollar evaluations for mostly valueless companies. The only reason inflation started hitting consumers is because asset growth reached the end.

  > We've had inflation.

what was the cause of this?

Re: Why is inflation so sticky? It could be corporate profits

#152

Post by dannyw » Wed, May 03, 2023, 9:32 AM UTC

psychphysic wrote: post #102

politelemon wrote: post #99

In the UK there's a company called Virgin Media (broadband, TV, phone provider) which has been completely blatant about it. They recently informed all customers that going forward they will annually be increasing prices by RPI + 3.9%. https://www.virginmedia.com/mobile/annual-rpi-price-increase https://www.ispreview.co.uk/index.php/2023/01/virgin-mobile-...

I could understand something smaller like RPI+1.5% Ultimately I think the private sector pay has risen by about 4-5% annualised so maybe that's where they got that pricing. Companies always prefer to offer sales and discounts rather than lower prices. Same with antivirus companies who's model runs on let's hope they forgot renewal will be 10x the price! This all relies on consumers not switching accounts constantly t…

rpi is 13%

Re: Why is inflation so sticky? It could be corporate profits

#153

Post by andrekandre » Wed, May 03, 2023, 9:36 AM UTC

autoexec wrote: post #25

wg0 wrote: post #23

Basic issue isn't excess of money. Basic issue is shortage in supply. Demand hasn't skyrocketed magically. The world over production levels were lowered to almost zero for couple of years. Interest rate hikes have wreaked a havoc of their own.

> Basic issue is shortage in supply. What's the supply issue that's impacting normal grocery store items? Is there a ship full of peanut butter ground beef and breakfast cereal stuck in a canal somewhere? Why would we have a shortage of things like cheese and pasta? For a short time there were real issues with things like toilet paper, but even that has been resolved (unless you're in the EU maybe). What's driving sh…

  > What's the supply issue that's impacting normal grocery store items?

well, for eggs, just to take 1 example: bird flu *

* https://www.nerdwallet.com/article/finance/why-are-eggs-so-e...

Re: Why is inflation so sticky? It could be corporate profits

#154

Post by scotty79 » Wed, May 03, 2023, 9:42 AM UTC

paxys wrote: post #58

Their argument is basically that while normally a company raising prices would mean that some of their customers move to a competitor, in today's environment there is an implicit agreement that every company will keep prices high. So are they saying that the free market is basically not a thing anymore because of covid, and no company wants to get an edge over its competitors by undercutting on price despite having r…

> So are they saying that the free market is basically not a thing anymore because of covid, and no company wants to get an edge over its competitors by undercutting on price despite having record margins?

Covid has nothing to do with it. Market always worked this way. There's really very little reason for a company to lower the prices below what consumers are already willing to pay. When the market is saturated and all customers are accustomed to paying certain level of prices for a given good and you try to lower your prices for that good it won't automatically mean you'll sell more. You might even sell less because people will assume you sell a good of lower quality. It can take decades for the customers to learn while you are leaving profits on the table. Profits that you might have used for marketing to actually get more sales at higher price.

Try to buy a box of crayons in Florence, Italy.

Re: Why is inflation so sticky? It could be corporate profits

#155

Post by 127 » Wed, May 03, 2023, 9:44 AM UTC

silisili wrote: post #3

It's a likely theory. But economics teaches us when a player overcharges, others will step in to undercut and take all the market share. So, we're at a point where we need to admit that mantra isn't true in the modern age, or admit that we've done a terrible job at preventing effective monopolies/duopolies from forming.

Without strong regulation, free markets do not work, as the players start to distort the market to win.

Re: Why is inflation so sticky? It could be corporate profits

#156

Post by willis936 » Wed, May 03, 2023, 9:46 AM UTC

shoubidouwah wrote: post #136

mjevans wrote: post #97

Earlier quoted context omitted.

Things I pay a lot for: * Rent (they're all high; and can't afford to buy anywhere near where I work) * Food (prices are pretty much the same everywhere) * Internet (Cable's the only modern-speed option where I currently rent) * Energy / Gas - either utilities or again, the same everywhere I think most everyone else is in the same boat. I can scale down some of these a little bit, but they're all fairly __inelastic__…

the rent, as always: https://en.wikipedia.org/wiki/Law_of_rent and the companies do not want to compete: most modern large companies only exist as a _vehicle for investment_, and as such compete for shareholders, not consumers. Due to this, short-termism dominates: average CEO stays 4 years at a given company, and performance of the company after they leave is largely uncorrelated with their carreer success, while sh…

I'm not familiar with the law of rent, but it does not seem accurate. Right now blue collar workers can't afford to rent within a 60 minute commute to Boston, where they are not paid a wage that justifies that commute. Why would you cook or clean in Boston when you could do it literally anywhere else in MA without the commute?

I guess my point is that markets continually prove to not be rational. Maybe a philosopher hundreds of years ago imagined they could be, but that's not how things are shaking out.

Re: Why is inflation so sticky? It could be corporate profits

#157

Post by biscottigelato » Wed, May 03, 2023, 9:49 AM UTC

Tesla cutting prices aggressively at the expense of both their own margins, but also of other automakers having their market share and revenue shrinking massively, puts this WSJ theory immediately to bed.

Re: Why is inflation so sticky? It could be corporate profits

#158

Post by refurb » Wed, May 03, 2023, 9:49 AM UTC

2000UltraDeluxe wrote: post #71

refurb wrote: post #36

Earlier quoted context omitted.

Why would a supply chain issue in a handful of products cause the price of all items to go up? That makes no sense.

Handful of products? In Finland, at least, much of the grocery market is controlled by two dominant players that more or less control the entire supply chain for many products. Both have been profiteering like crazy lately, and for most people there's no option than their local supermarket.

Supply chain - the materials that go into producing a good or getting the finished good to market.

There were no supply issues during covid with many, many products. Yet those prices went up too, even in a country with a high level of competition.

Why?

Re: Why is inflation so sticky? It could be corporate profits

#159

Post by makomk » Wed, May 03, 2023, 9:51 AM UTC

arcticbull wrote: post #114

qeternity wrote: post #107

Earlier quoted context omitted.

Japan now has actual inflation and is going to be completely powerless to stop it.

That's a great theory. Let's see how it plays out. Looks like it's down to 3.2% from 4.3% at the start of the year. [1] [1] https://tradingeconomics.com/japan/inflation-cpi

Having any inflation at all is remarkable for Japan - they've basically had deflation since the early 90s. The measures they've been using to keep inflation that low also look unsustainable (their foreign currency reserves are going to be eaten away).

Re: Why is inflation so sticky? It could be corporate profits

#160

Post by pydry » Wed, May 03, 2023, 9:54 AM UTC

dragonwriter wrote: post #143

pydry wrote: post #131

Earlier quoted context omitted.

Rents would go down , actually. Demand for housing would remain the same. Short term it would create a strong incentive not to hoard property. If it's not rented out it is losing money. Landlords would scramble to rent them out - driving up supply. Medium term rents would decrease, too. A land tax would create a powerful incentive to yield low density housing in high value locations to be redeveloped into high densit…

> Rents would go down, actually. The idea that you can tax an input more and reduce prices is ridiculous on its face. > Demand for housing would remain the same. Also unlikely. Basically any change in local conditions will impact housing demand one way or another. The global number of people needing housing may not change, but that’s not housing demand (globally or locally). > Short term it would create a strong ince…

>The idea that you can tax an input more and reduce prices is ridiculous on its face.

Of course. It would absolutely reduce the price of property.

Just not rents.

>Basically any change in local conditions will impact housing demand

Hand waving.

>Property tax already does that, and most places have properry taxes.

When high enough property taxes do inhibit hoarding, yeah. They approximate a less desirable form of land value tax.

In my city property taxes are capped at an absurdly low level and property is hoarded like bitcoin while people die on the street. Tax policy at work.

>Except they already do that, but higher taxes would raise the break-even price.

Remember when you said?

"The idea that you can tax an input more and reduce prices is ridiculous on its face."

You were absolutely correct. PROPERTY prices would decline to compensate for the higher taxes.

That would in turn keep the breakeven price more or less the same for developers.

It would also reduce the capital intensity of property development since the cost of the land wouldn't be front loaded.

Dont get me wrong. This would turn property owners into renters of a kind (renting land from society) and this would make a lot of property owners furious - and probably violent. It's not a panacea - it's just a way to euthanize one kind of economic parasite.