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Corporate profits account for almost half the increase in Europe’s inflation

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Re: Corporate profits account for almost half the increase in Europe’s inflation

#391

Post by revelio »

makomk wrote: post #292
ajsnigrutin wrote: post #112

Earlier quoted context omitted.

The problem here, especially if the prices are rising higher than wages is, that sooner or later the basic necessities (food, shelter, ...) reach a level, where people can barely pay them, and all the other industries suffer, because consumers don't have any leftover money for luxuries, gadgets, etc. Some prices (mostly services) can be adjusted, some could be (rents, housing, mostly by rezoning and building more), b…

It is probably not possible for people to carry on buying luxuries, gadgets etc at the same levels as before without others being forced to do without the basic necessaties. Remember, this all started out with an energy crisis: there was not really enough to supply all the factories in China running flat out as people caught up with their consumption along with everything else, and then Russia throttled back their ex…

The sharp rise in inflation predates any kind of energy crisis. Inflation kicked off in 2021.

https://tradingeconomics.com/united-states/core-inflation-ra...

Energy didn't become a major issue until Ukraine was invaded.

Inflation was triggered by all the money printed during COVID getting into the economy once it opened up again.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#392

Post by larksimian »

legitster wrote: post #139
lovich wrote: post #121

Earlier quoted context omitted.

> While Bank of England Governor Andrew Bailey sparked a minor firestorm when he suggested workers shouldn’t ask for big wage increases…[1] [1] https://www.bloomberg.com/news/articles/2022-03-17/powell-tr...

He's diagnosing runaway inflation. At no point is actually chastising workers directly. Bailey's comments were squarely aimed at blaming Brexit and energy markets, people intentionally took his words out of context to bake up a "gaff".

He's lying.

Worker wages have been stagnant for a decade plus. Even the recent increases have been vastly outpaced by increases in prices AS EVIDENCED BY INCREASING PROFIT at companies that are increasing wages.

The problem is there is no price competition because most sectors of the economy are oligopolistic and have no interest in competing with each other one price at the moment.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#393

Post by revelio »

coliveira wrote: post #155
dantheman wrote: post #85

Earlier quoted context omitted.

That can only go on for so long; if people see companies buying out competitors people will jump to create more and more competitors for the easy exit.

Will they? Only if they can. Tech industries are example #1 for this behavior. At some point very few people can create a competitor for Amazon, Google, or Apple.

Apple has lots of competitors and doesn't even have dominant market share.

Google is hard to compete with due to network effects, because they don't often miss tricks, and because they've invested so heavily in core R&D for so many years. The classical story about competition is that a big rich company becomes complacent and stops improving their products, opening a gap for new companies to enter, but Google hasn't really done that, they continue to tweak and try new things (arguments about search quality specifically for precise programmer queries aside).

Amazon retail is hard to compete with because it's not a very good business. They keep margins extremely low for not entirely rational reasons, which is why most of their profit now comes from AWS. AWS meanwhile does have competitors.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#394

Post by roenxi »

sofixa wrote: post #383
roenxi wrote: post #324

Earlier quoted context omitted.

Governments have a cynical knack of identifying every possible cause of inflation, no matter how tenuous, except the obvious one - government policy. Governments will blame businesses, consumers, employees, foreigners and bad weather. The only option ruled out is all the money printing going on and a good decade of regulators encouraging that and high-risk financial behaviour. If inflation is high, it is a bad time t…

If anyone is still claiming the main or only reason for inflation is "money printing", they really haven't being paying attention to the world for the past 3 years and it's a terrible idea to listen to them. Why are you ignoring a pandemic with associated measures such as lockdowns (although funnily, Sweden is very useful - they didn't lock down, they didn't print a ton of money, yet they're experiencing similar infl…

> Do you really think none of this matters...

All those issues will be resolved and the effects will disappear in time. The war will end. Supply chains will realign. And if those things matter, then at that point we would expect prices to come down. You'd have to be naive to believe prices will come down. They aren't going to. This is not the first crisis in the last century and yet inflation is almost uniformly positive year after year. Governments are explicit in their policy-making.

Those things don't matter when identifying why prices tend to go up over time.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#395

Post by neximo64 »

truckerbill wrote: post #141
nostromo wrote: post #52

Inflation is caused by monetary policy. Did profits increase? Potentially, yes. But they couldn't have increased without the enabling condition of massive money printing. Companies were trying to maximize profits before 2020. That hasn't changed. What changed was the monetary policy.

Yes. But importantly its not the printing of money that was the problem either. If you think about the path money takes especially the furlough: government -> consumer -> big capital (Petro/chemicals, Pharmaceuticals, Food Conglomerates, Landlords, Tech...). And that's where it stays. How do you get it back? Well aimed taxes. Otherwise big capital buys all the assets as in investment with their new found pile.

And the tax -> government spend. Which again stokes inflation so not sure thats a good argument. The government has to cut spending and build a surplus for taxes to be disinflatory

Re: Corporate profits account for almost half the increase in Europe’s inflation

#396

Post by soco »

abeppu wrote: post #220
rgbrenner wrote: post #33

I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change. In an inflationary perio…

Just because firms don't prefer to think about pricing in terms of cost-plus doesn't mean that their actual costs are "irrelevant". If people feel that a company is pricing their goods unfairly, shouldn't they move their spending elsewhere? If companies with healthy and growing margins fire people with memos citing challenging economic headwinds, shouldn't people call BS? If companies raising their prices dramaticall…

You can only be price sensitive when you have a real choice. And I'm talking oligopoly here, impossible to shake in just two years since covid hit with the extra pressure.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#397

Post by autoexec »

juve1996 wrote: post #335
evancox100 wrote: post #215

Earlier quoted context omitted.

All of those things are independent from nominal price/wage increases. If higher pay was such an unalloyed good, why doesn't the government just pass a law saying "Whatever amount you were getting paid on 6/26/23, now you're getting paid double that, and you have twice as much money in your bank account."? Because no one would actually be better off. Prices would instantly double. It's just a change of units, like go…

> Because no one would actually be better off. Prices would instantly double. It's just a change of units, like going from getting paid in $ to getting paid the same amount in ¢. This is so basic but so many people miss it. I have continually explained this to my parents. It doesn't matter how good your 401k is doing if it leads to eggs being $12 a dozen in your retirement.

Historically, that hasn't happened when worker's wages increased. Prices do tend to go up (they always do) but not to the degree that it makes the wage increases worthless. When minimum wages go up, workers lives improve. Also, when companies don't have an excuse, consumers simply won't pay $12 for a dozen eggs. Every consumer has some idea of what things are worth and if a company tries to jack prices up for no reason consumers feel cheated and stop paying.

There's zero reason why companies can't all just triple their prices right now, except that if they did, people wouldn't pay and their profits would drop. Companies constantly test consumer's acceptance of price increases and usually only increment their prices slowly so that the next generation they rip off doesn't know any better having always grown up with the slightly higher prices.

The supply shortages of the pandemic broke the system. It gave every company an excuse for price gouging, and at first, much of that was legitimate supply/demand and consumers were understanding. Then as the supply of goods came back they started using the inflation narrative (complete with "printed money" excuse) to justify further increasing prices, but now we have a growing pile of evidence that they were lying and were just pocketing the extra money. Naturally, and rightly, people are starting to feel ripped off.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#398

Post by IMTDb »

rightbyte wrote: post #56
rgbrenner wrote: post #33

I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change. In an inflationary perio…

> Companies do not price goods based on the goodness of their hearts. Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts. If employers catch the absolute currency value increase of inflation the employee employer balance is shifting.

> Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts.

Meanwhile, my government mandates that ALL employees automatically get a raise matching inflation. No negotiation possible/needed; employers cannot refuse. Belgium.

Sounds great in theory; in practice Belgium competitiveness index and innovation index is lower than all its neighbouring countries; including France and post Brexit UK.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#399

Post by pnt12 »

IMTDb wrote: post #398
rightbyte wrote: post #56

Earlier quoted context omitted.

> Companies do not price goods based on the goodness of their hearts. Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts. If employers catch the absolute currency value increase of inflation the employee employer balance is shifting.

> Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts. Meanwhile, my government mandates that ALL employees automatically get a raise matching inflation. No negotiation possible/needed; employers cannot refuse. Belgium. Sounds great in theory; in practice Belgium competitiveness index and innovation index is lower than all its n…

But does it result in better quality of life? Maybe competitiveness is not the best target to optimize for.

Re: Corporate profits account for almost half the increase in Europe’s inflation

#400

Post by teruakohatu »

IMTDb wrote: post #398
rightbyte wrote: post #56

Earlier quoted context omitted.

> Companies do not price goods based on the goodness of their hearts. Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts. If employers catch the absolute currency value increase of inflation the employee employer balance is shifting.

> Governments etc. argue that employees should not demand higher pay to match inflation to avoid a "spiral" out of the goodness of their hearts. Meanwhile, my government mandates that ALL employees automatically get a raise matching inflation. No negotiation possible/needed; employers cannot refuse. Belgium. Sounds great in theory; in practice Belgium competitiveness index and innovation index is lower than all its n…

> Meanwhile, my government mandates that ALL employees automatically get a raise matching inflation

How does this work in practice? It is your wage is reviewed annually and adjusted, or more frequently? Do employers give raises for good performance or do you expect to just get a raise based on inflation?

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