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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

#11

Post by chrishare »

There are so many threads here. The reserve bank governor is deeply unpopular in the broader public because of 2021 comments he made about there being no interest rate increases needed until 2024 [1]. As mentioned in the article, many companies are posting record profits, including supermarkets [2] - leaving low and middle income people hurting, and working more hours or side jobs. Those same people also face an adversarial rental housing market [3]. Competition, at least in this market, seems to be exerting very little downward pressure on prices for commodity goods. Buy-now-pay-later schemes continue to damage the poorest in our society - even big banks now make it easy to take on bad debt [4].

There are many challenges in Australia, but also opportunities to make things better.

[1] - https://www.afr.com/policy/economy/lowe-admits-embarrassing-...

[2] - https://www.abc.net.au/news/2023-02-23/supermarket-profits-s...

[3] - https://www.abc.net.au/news/2023-01-19/australias-rental-mar...

[4] - https://www.nab.com.au/personal/buy-now-pay-later

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

#12

Post by brutusborn »

DecoPerson wrote: post #7

By its nature, the strong two-tier economy that exists within Australia is not captured within analyses like this. The “law abiding” tier that pays employees the award rate, pays something resembling proper GST & income tax, and doesn’t use Proprietary Limited tricks to escape long-term liabilities — the companies in that tier are suffering (especially the smaller ones). These companies are captured in these analyses…

Out of interest, what makes you frame the two-tier economy like this? I’d always thought of the two tiers as rent-seeking vs firms that must compete, not small legal business vs the rest.

For example you mention some companies paying award rate, but isn’t that a requirement for all companies? Obviously resource companies can afford to pay well above board, but isn’t that simply a function of high returns from rent-seeking activity?

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

#13

Post by cjbgkagh »

pmontra wrote: post #6
WalterBright wrote: post #4

The wage-price spiral theory of inflation is bunk. Inflation is caused by the devaluation of excessive printing of money.

Central banks have been printing money for years (quantitative easing, "whatever it takes" , etc) and there was no inflation.

The 'excess' money was soaked up into asset bubbles not measured by most inflation indexes, or at least under weighted. Which is fine until people sell those assets and spend the money which they have to do eventually.

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

#14

Post by geoduck14 »

vkou wrote: post #9
WalterBright wrote: post #4

The wage-price spiral theory of inflation is bunk. Inflation is caused by the devaluation of excessive printing of money.

Every time your local bank issues a loan, it creates money out of thin air.

The banks are only allowed to loan a certain amount. The department that prints mone6 is the same department that regulates how much can be lent by all banks (in the US), so it is the same type of "creating money" as printing money is. And is accounted for when calculating "how much money is in circulation"

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

#15

Post by rightbyte »

pmontra wrote: post #6
WalterBright wrote: post #4

The wage-price spiral theory of inflation is bunk. Inflation is caused by the devaluation of excessive printing of money.

Central banks have been printing money for years (quantitative easing, "whatever it takes" , etc) and there was no inflation.

Trickle down economy you know. Of all these house millionaires you need to sell your house and move somewhere cheaper to actually benefit. It takes time until enough people cashes out to move the needle.

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

#16

Post by motohagiography »

It really does look like Australia tried to print its way out of the pandemic last year, and now its purchasing power hasn't kept up with other food, energy, and other inputs prices: https://tradingeconomics.com/australia/money-supply-m1

What should happen is a return of Bond Vigilantes: https://www.investopedia.com/bond-vigilante-6386194 , but if it doesn't, I'd wonder who is holding most of Australia's debt.

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

#17

Post by Aunche »

Here is the "analysis" in question:

https://australiainstitute.org.au/wp-content/uploads/2023/02...

It never actually explains what exactly a "profit-price spiral" is. Even if company profits are to blame for inflation, the only solution that central bankers have at their disposal is to increase interest rates to cool aggregate demand. This is why we leave central banking to technocrats rather than people with a political agenda.

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

#18

Post by brutusborn »

Nursie wrote: post #5
WalterBright wrote: post #4

The wage-price spiral theory of inflation is bunk. Inflation is caused by the devaluation of excessive printing of money.

Nope. That’s well known bunk from alt-economics. Convenient to Austrians and Libertarians who get to blame the government (again), but wrong. Money supply is only one factor in a complex system.

Maybe it’s not the only factor but surely it’s the major factor right now?

Sure, we had a supply shock, but then we printed the most currency in history and got soaring inflation.

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

#19

Post by Grimburger »

chrishare wrote: post #11

There are so many threads here. The reserve bank governor is deeply unpopular in the broader public because of 2021 comments he made about there being no interest rate increases needed until 2024 [1]. As mentioned in the article, many companies are posting record profits, including supermarkets [2] - leaving low and middle income people hurting, and working more hours or side jobs. Those same people also face an adve…

> The reserve bank governor is deeply unpopular

Only 30% of people have mortgages, why should the remaining 70% care, many can even put money in savings accounts again after 15 years of them being basically worthless.

He never said interest rates wouldn't rise either, he basically said they don't forecast the conditions that warrant a rise won't happen until then.

Here's a pro-tip if you took on too much debt under the naive belief that 0.1% interest rates were the new norm, sell your overinflated assets and live debt free.

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