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Why is inflation so sticky? It could be corporate profits

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

#231

Post by neilwilson »

makomk wrote: post #150
neilwilson wrote: post #139

Earlier quoted context omitted.

Why are prices controlled at all? Because as a consumer you can go somewhere else. If there is insufficient excess supply capacity we can't do that in aggregate and prices can be hiked with impunity. Inflation is always, everywhere, a lack of effective competition.

For almost all goods, price increases will decrease the amount purchased. If there's still insufficient excess supply capacity after substantial price increase and decreases in people's purchasing power and consumption, then the reason competition isn't lowering prices is because that's the actual market-clearing price where demand is equal to the amount that can be produced. This can't be fixed by forcing companies…

That makes assumptions that don't hold in the round. Once you have a lack of supply capacity such that there is inflation, then everybody can pass on the price changes and the amount purchased doesn't change.

That's the problem.

Somebody has to stand the loss, and for that to happen there has to be an expectation that you can't pass on the price shift somewhere in the cycle, which then forces that somebody to reduce the quantity purchased or shift it to an alternative supplier.

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

#232

Post by cmmeur01 »

pydry wrote: post #209
prepend wrote: post #201

Earlier quoted context omitted.

That’s interesting. Why is land tax not a cost that’s passed on to the consumer while all other costs do? Typically inelastic goods mean that prices can increase because demand will not drop as prices go up.

It is passed on to the consumer but the consumer in this case is the landlord not the renter. There are two markets with two types of consumer here: 1) The market for a roof over your head. This is highly (but not completely) inelastic. People need somewhere to live. 2) The market for property as an investment. Higher taxes on an asset disincentivizes ownership of that asset. This is elastic because there are tons of…

So do landlords just eat that tax increase or do they raise rents?

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

#233

Post by moffkalast »

greenfield1 wrote: post #218
DrNosferatu wrote: post #198

No shit, Sherlock: In Portugal, for most of 2022 to this day, the price of 1L own/white brand of semi-skimmed milk (one of the most basic and essential staple foods) has been the exact same - to the cent - on all different supermarket chains (Lidl, Audi, Auchan, Jerónimo Martins, Intermarché, Sonae, Dia, etc.) operating here. And, it has risen in steady small increments at exactly the same time in all of them, multip…

I'm not saying there is no price fixing, but this could also be explained by the supermarket chains all using the same suppliers (which is most definitely the case since the dairy market is not as diversivied as one might think; it's dominated by a few big players) and those suppliers already doing cut-throat price competition with razor sharp margins, meaning that if the slightest cost increase happens then it impac…

It's both. It's definitely both.

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

#234

Post by scotty79 »

atchoo wrote: post #192
scotty79 wrote: post #154

Earlier quoted context omitted.

> 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…

> Try to buy a box of crayons in Florence, Italy. What is this a reference to?

It is what helps one understand that demand and supply are not only things that dictate the price of even a very common goods, even in absence of advertisement.

Affluence of customers play a huge role.

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

#235

Post by thfuran »

simple-thoughts wrote: post #142

A few people have said that the response to inflation will be price controls eventually. Reviewing this article and comment section has convinced me that it is politically possible. Perhaps it’s a good time to remind people that inflation has happened many times in human history, as has price controls, and that the outcome will be shortages.

>Reviewing this article and comment section has convinced me that it is politically possible.

How so?

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

#236

Post by bell-cot »

fatfingerd wrote: post #212
bell-cot wrote: post #165

Earlier quoted context omitted.

Notice how many of those things have highly inelastic supply, are monopolies (or close), or have really bloated "value adding" supply chains. NIMBYs and such ensure that more housing can't be built, at scale , in areas with high rents, to have normal supply/demand dynamic. Food is relatively cheap, if you cook for yourself and don't mind a lot of beans, rice, bread-machine bread, peanut butter, etc. If you want heavi…

Prepared food is really unconsolidated like bulk food unless you live in a total roadside mall hellscape. There seems to be agreements on maintaining irrational pricing where there is price differentiation. I.e. you will pay more for cheaper to make vegan food because a vegan can't eat a cheap burger. IMO this is more distributed in nature like landlords sharing a price fixing app.

Disagree. There is a very old rule of thumb in the restaurant biz, that your selling price has to be 4x your actual cost of the food - because of all the labor, kitchen equipment, rent, etc. overhead. I'd bet that similar rules of thumb apply to grocery stores' deli departments, shrink-wrapped sandwiches in vending machines, and pretty much every other sort of non-restaurant prepared food.

And, at least in the area I live in, the barriers to entry for the restaurant biz are pretty minimal. Most restaurants are (at most) local micro-chains, and there's a lot of churn as people try to make a restaurant work...and often fail financially. Want to get into the restaurant biz? With a low-6-figure nest egg, and willingness to wait for some local commercial landlord to have a vacant failed little restaurant on his hands, it's "easy". And the real estate supply is pretty elastic - cities and NIMBYs favor the (often quick & easy) construction of more small retail spaces; likewise converting generic vacant retail spaces into more restaurants.

Vs. if you want to be residential landlord - I'll guess a 7-figure nest egg to buy existing property (limited supply, and buying some does not increase overall supply). If you want to actually expand supply, by building rental housing at scale...you'd better have an 8-figure nest egg, and experienced legal team, and be willing to spend 8+ years (from "ready to do this" to "collect rent checks") fighting your way through the government red tape, NIMBY-land's standing army, and actual construction. With no guarantees of success.

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

#237

Post by juve1996 »

autoexec wrote: post #20
juve1996 wrote: post #10

Earlier quoted context omitted.

This only works in an environment that's flush with cash. E.g. a decade long bull market with artificially low interest rates, 2018 tax cuts, and stimulus from covid. Was a perfect storm.

It works fine as long as the money you lose from the people you price out amounts to less than the money you gain by overcharging others who can afford it. You don't need an environment flush with cash for that to happen, you just need enough people who are well off enough to pay, or (as we saw in the pandemic) desperate enough to go into debit in order to get what they want. There's likely a rather large segment of…

> you just need enough people who are well off enough to pay,

Which is what happens after a decade long bull market, tax cuts, low rates, and stimulus. More people had more money that didn't before and they wanted more things and they wanted them now.

But you still need a critical mass of demand, which means a bigger portion of the population demanding goods. Which means you need a bigger population than the mega rich to explain the problem. There was always rich people - yet we never saw this problem until now.

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

#238

Post by psychphysic »

piva00 wrote: post #124
gfdsgfsdgfs wrote: post #113

Earlier quoted context omitted.

Why are you blaming UK's health crisis on neoliberalism? The NHS is as "socialist" as you could get in Western society.

The NHS is bound to the UK's government economical policies, the main economical policy of the UK since Thatcher is neoliberalism (including Blair's Labour embracing The Third Way of social-democracy); the current Tory government has only been applying those principles ever more. The NHS as a concept is socialist, its implementation depends on taxes which depends on the UK's fiscal policy which in turn is neoliberali…

What doesn't make sense is that what keeps UK trained doctors working within the UK?

It's goodwill. They could improve their lives immensely with a move to Australia, and New Zealand. If they are willing to do another round of exams on par with their finals they can go to Canada and the US.

That's what it means when I say it's staffed by goodwill.

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

#239

Post by scotty79 »

fallingknife wrote: post #217
scotty79 wrote: post #154

Earlier quoted context omitted.

> 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…

If the market always worked this way, why is it being blamed for inflation that has only existed for the past year?

As US and western customers are getting poorer for the first time in decades they are just starting to notice the inflation. The inflation was there before and companies were milking it at least since 2000, but since customers still had money nobody was really thinking about it. Of course only recently inflation got as high as it is, because of all the money printing done in the pandemic and a bit before.

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

#240

Post by pydry »

cmmeur01 wrote: post #232
pydry wrote: post #209

Earlier quoted context omitted.

It is passed on to the consumer but the consumer in this case is the landlord not the renter. There are two markets with two types of consumer here: 1) The market for a roof over your head. This is highly (but not completely) inelastic. People need somewhere to live. 2) The market for property as an investment. Higher taxes on an asset disincentivizes ownership of that asset. This is elastic because there are tons of…

So do landlords just eat that tax increase or do they raise rents?

They'd eat it.

Depending on how high and fast it was raised it would likely lead to a steady stream of landlords defaulting on their mortgages and leaving the banks holding the property.

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