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Fed should make clear that rising profit margins are spurring inflation

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Re: Fed should make clear that rising profit margins are spurring inflation

#21

Post by rhaway84773 »

ericmcer wrote: post #15
rahimnathwani wrote: post #2

This is an opinion piece. It speculates about reasons why companies have increased prices faster than their input costs have risen: "The resulting resilience in demand has given companies the confidence to raise prices faster than costs. In addition, the power of storytelling has conditioned consumers to accept price rises. Imagine a story about a farmer who takes wheat to the windmill, where it is ground into flour,…

If the government dumps a shitload of cash on everyone and the demand for bread goes way up overnight then the bread seller would 100% raise his prices out of sync with the cost of wheat. The bread seller is either charitable or dumb if he doesn’t sell for whatever people are willing to pay.

So the US government dumped a shit load of cash on everyone and that’s why prices in the U.S. went up.

Which doesn’t explain why other countries, where the government didn’t dump a shitload of cash, are seeing even higher price increases than the U.S.

Also, what’s the mechanism for govt dumping shit load of cash allowing prices to go up? The usual suspects point to the fall in the value of the dollar, but the dollar is historically strong at the moment. Another mechanism could be a massive increase in demand, but that would be accompanied by a corresponding massive rise in GDP.

Re: Fed should make clear that rising profit margins are spurring inflation

#22

Post by RC_ITR »

mr_toad wrote: post #19

I’m seeing this narrative pushed a lot by politicians who would like to shift the blame to anyone other than themselves.

Well, when the truth is “blame consumers for consuming a record amount of stuff with no price sensitivity after being forced indoors for two years, where they learned life is meant to be lived,” I can see why they don’t want to take the fall for that.

Re: Fed should make clear that rising profit margins are spurring inflation

#23

Post by randomdata »

rhaway84773 wrote: post #21
ericmcer wrote: post #15

Earlier quoted context omitted.

If the government dumps a shitload of cash on everyone and the demand for bread goes way up overnight then the bread seller would 100% raise his prices out of sync with the cost of wheat. The bread seller is either charitable or dumb if he doesn’t sell for whatever people are willing to pay.

So the US government dumped a shit load of cash on everyone and that’s why prices in the U.S. went up. Which doesn’t explain why other countries, where the government didn’t dump a shitload of cash, are seeing even higher price increases than the U.S. Also, what’s the mechanism for govt dumping shit load of cash allowing prices to go up? The usual suspects point to the fall in the value of the dollar, but the dollar…

> Which doesn’t explain why other countries, where the government didn’t dump a shitload of cash, are seeing even higher price increases than the U.S.

Wheat is a global commodity, and the Chicago price is what the world works off of.

> but the dollar is historically strong at the moment.

As compared to what? It is historically weak compared to wheat, but presumably you mean compared to other currencies? Global transactions largely take place in USD, oil in particular, and the increase in monetary supply ended up in the hands of Americans first, so they have more of it to spend while the rest of the world does not, leaving those holding other currencies trying to buy up more USD all while Americans are trying to hold onto it over inflation fears.

Re: Fed should make clear that rising profit margins are spurring inflation

#24

Post by EdwardDiego »

SamReidHughes wrote: post #6

It would be more accurate to state that consumer demand (as there is a bunch of excess savings sloshing around from Covid) is driving up market-clearing prices. Profit margins don't increase prices.

... you're going to have to run that past me again. If my cost of producing a gubbin is X, and I sell it for X + 5% margin, then start selling it for X + 15% margin, then the price will increase. Seems straightforward, what am I missing?

Re: Fed should make clear that rising profit margins are spurring inflation

#25

Post by quarter_lambda »

My understanding is (please correct me if I am wrong) people/companies need to charge maximum amount they can to actually control the inflation in the long run. Assume everyone charges exactly the cost of a product without any profit margin, which would result in more savings for people with money. In return, they will buy something else with the extra money (including assets) increasing demand somewhere else.

In this scenario, if no one increase prices, either something will go out of stock or we need to have enough supply to meet maximum possible demand. I think companies are increasing prices because it is easier than increasing supply. If demand is shown to be persistent they will increase supplies too. This is similar to chip shortage we had. First prices increased, now they are trying to increase fab capacity. No need to invest in manufacturing capacity if this extra demand is just an anomaly which will disappear soon. Reducing prices later is much easier in this scenario.

I recognize people without means are squeezed in all of this but I also don’t see any easy solution.

Re: Fed should make clear that rising profit margins are spurring inflation

#26

Post by EdwardDiego »

rahimnathwani wrote: post #2

This is an opinion piece. It speculates about reasons why companies have increased prices faster than their input costs have risen: "The resulting resilience in demand has given companies the confidence to raise prices faster than costs. In addition, the power of storytelling has conditioned consumers to accept price rises. Imagine a story about a farmer who takes wheat to the windmill, where it is ground into flour,…

An opinion piece by someone paid to be an economist, so you know.

Re: Fed should make clear that rising profit margins are spurring inflation

#27

Post by somerandomqaguy »

rahimnathwani wrote: post #2

This is an opinion piece. It speculates about reasons why companies have increased prices faster than their input costs have risen: "The resulting resilience in demand has given companies the confidence to raise prices faster than costs. In addition, the power of storytelling has conditioned consumers to accept price rises. Imagine a story about a farmer who takes wheat to the windmill, where it is ground into flour,…

> Unless there's some bread cartel/oligopoly, a bread seller can't just increase prices and use a story to convince people it's unavoidable.

...funny you should use bread as your example....

https://en.wikipedia.org/wiki/Bread_price-fixing_in_Canada

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The senior officers of Canada Bread, since 23 May 2014 a Grupo Bimbo subsidiary,[6] and Weston Foods, now a sister company to Loblaws under parent George Weston Limited, colluded to boost bread prices, and later strong-armed retailers to increase their prices in tandem.[5] The two named companies became aware of the investigation on 31 October 2017, and decided to co-operate with investigators in December in exchange for receiving immunity from prosecution.[5]

A statement issued by Canada Bread noted that the George Weston and Loblaw informants admitted to inappropriate conduct and accused "certain former Canada Bread executives" dating back to 2001 "while Canada Bread was under previous ownership."[5]

-------------------------------------

Re: Fed should make clear that rising profit margins are spurring inflation

#28

Post by refurb »

mr_toad wrote: post #19

I’m seeing this narrative pushed a lot by politicians who would like to shift the blame to anyone other than themselves.

Pretty much. They don’t want to admit their own spending policies and pressure to expand the money supply is the cause.

And the best part is when they tell employers to not raise wages because it makes inflation worse.

Re: Fed should make clear that rising profit margins are spurring inflation

#29

Post by roenxi »

When goods are short, we might expect profit margins to rise as the market rewards people who supply goods. If they aren't making extra profit, then there is no incentive to produce more goods.

A fairer interpretation of the situation is there is a lot of money chasing less goods. That results in, simultaneously, high inflation and reduced living standards. High profit margins aren't causing inflation - there have to be people able to pay the prices for raising them it to make sense.

Plus, the writer of the piece appears to work in wealth management. He's going to lose a lot of money if the fed doesn't drop rates back to 0. The author has a very strong incentive to argue as he does.

Re: Fed should make clear that rising profit margins are spurring inflation

#30

Post by Gigachad »

1letterunixname wrote: post #8

No no no, it absolutely must be reckless shoppers spending so much money on necessities. They should be ashamed of themselves for buying food, toilet paper, and baby formula. Corporations are always innocent conveyors of value. sigh

We are seeing record consumption of luxury goods like iPhones, GPUs and TVs. The population largely still has too much money going after not enough product.
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