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It raises the question of whether submitters should have their karma penalized for sensationalizing the title, particularly when, as in this case, it hits the #1 spot in half an hour and generates a thread full of political flamewars.
TLDR: * Profits: 45 percent * Import costs: 40 percent * Labour costs: 25 percent Somehow obviously arriving at 110%? "As the Chart of the Week shows, the higher inflation so far mainly reflects higher profits and import prices, with profits accounting for 45 percent of price rises since the start of 2022." "Import costs accounted for about 40 percent of inflation, while labor costs accounted for 25 percent. Taxes ha…
>Somehow obviously arriving at 110%? Because decreases in effective tax rates account for –10% of the observed change. Including negative contributions is a little confusing, but it gets a lot more confusing when you omit that part without clarifying why.
In an inflationary period, consumers expectations change allowing more movement in this price than normal. And this permits companies to increase prices, and produce higher profits. Note, their upstream providers are doing the same, and some of these higher profits will be passed on upstream.
Companies that are in a weaker market position, will find themselves unable to raise prices as much as their competitors.. and if their upstream providers find demand enables them to raise prices more than they can, they will find their profits decrease. Some of these companies will go out of business. This is one of the ways that inflation rids the market of less desirable companies.
Cost-plus pricing (how many consumers imagine pricing works) has almost entirely gone away in retail pricing. Even if a producer does this, the retailers will market adjust the price themselves... This is what has happened to car sales: the manufacturer didnt capture the difference, so the dealership captured it instead.
https://www.imf.org/en/Publications/WP/Issues/2023/06/23/Eur...
Here’s the abstract:
> We document the importance of import prices and domestic profits as a counterpart to the recent increase in euro area inflation. Through a novel consumption deflator decomposition, we show that import prices account for 40 percent of the average change in the consumption deflator over 2022Q1 – 2023Q1, while domestic profits account for 45 percent. The increase in nominal profits was largest in sectors benefiting from increasing international commodity prices and those exposed to recent supply-demand mismatches. While the results show that firms have passed on more than the nominal cost shock, and have fared relatively better than workers, the limited available data does not point to a widespread increase in markups. Looking ahead, assuming nominal wage growth of around 4.5 percent over 2023-24 – slightly below the level seen in Q1 2023 – and broadly unchanged productivity, a normalization of the profit share to the average level over 2015-19 will be necessary to achieve a convergence of inflation to target over the next two years. Monetary policy will thus need to remain restrictive to anchor expectations and maintain subdued demand such that workers and firms settle on relative price setting that is consistent with disinflation.
…
This is relying on a novel approach that hasn’t been peer reviewed, so we aren’t going to jump to a bunch of conclusions, right?
Ah yes ignore the money printing, certainly all of this inflation is the private sector! Where are the price caps?!?
crickets huh
Earlier quoted context omitted.
This kind of reply is uninteresting and unhelpful. These statements about inflation drivers are surprising (to some) and highly relevant because they counter corporate and conservative propaganda. We now know that government assistance isn't the main villain in the brutal inflation spikes of the last few years, and we need voters to understand that too.
"corporate and conservative propaganda" Most center-left economists are pretty dismissive of the idea that inflation is a corporate-profits-driven phenomenon too.
I find it hilarious when companies are following their stated goal of making profits, while everybody else is rushing to explaining rising prices by factoring in everything but profits.
During the start of the pandemic, there were legitimate supply chain shortages that resulted that resulted in increased prices without increased profits.
Supply chain issues are mostly fixed, but companies road that public perception for a long time to justify price increases.
The cause of rain is the ground getting wet
This kind of reply is uninteresting and unhelpful. These statements about inflation drivers are surprising (to some) and highly relevant because they counter corporate and conservative propaganda. We now know that government assistance isn't the main villain in the brutal inflation spikes of the last few years, and we need voters to understand that too.
Earlier quoted context omitted.
OR governments have demonstrated that they can take extreme decisions without warning, so businesses price accordingly. If you operate in this economy with unstable decision-making, then it creates margins to prepare padding. Even if all businesses were cash-flow-positive during Covid, the environment is still more unstable.
This. If govs can print out 2x the money supply in a few years, you want to “cash out” profits as fast as possible instead of reinvesting them.