The problem isn't inflation. It's prices. What goes up may not come down
vox.com
vox.com
> The root of what’s going on here can feel obvious: blame inflation, which picked up in mid-2021 and throughout 2022. But that isn’t really the issue anymore, at least not at the current rate, because inflation is coming down. The actual problem here is prices.
Inflation going from 10% to 5% is "inflation is coming down" - but it means that prices are rising at 5% a year instead of 10% a year.
If you want prices to go down - the inflation number would have a negative sign infront of it. Then they would be writing about how scary deflationary spirals are.
The problem is inflation - and inflation like all returns compound year after year.
I'm way more disheartened by people talking about inflation like it's the end all be all of prices. We know what price gouging looks like.
At which point I’m sure they’re considering their metropolitan statistical area’s figures instead of the national ones. /s
Namely, even if average / median inflation is going down, inflation is still non-zero - and even still very high - in categories that significantly impact lower-income households, urban families, farmers, etc.
https://usafacts.org/articles/which-us-regions-have-the-high...
In fact, I was just listening to a random, she must’ve been 60 year old woman and her mother in a waiting room rant about “how is prices going up with inflation going down”.
I’ve been working for 20 odd years now and still have coworkers who started the day I did rant “these fucking forced union wage increases! Don’t they know that I’ll hit a new tax bracket and then take home less money than before!”
These people are 40+ years old. They should know better.
In theory supply and demand should force prices back down over time, but ongoing consolidation/monopolies/backdoor price fixing (RealPage, Amazon Marketplace) kinda broke the efficient market stuff.
Trust bust before the economy busts?
One way this could happen is if salaries increased to match the new prices over time. The issue is that we are not seeing that happening, prices are increasing much faster than salaries, while corporate profits break records.
The money is flowing upwards, at some point people will get very fed up with that...
https://www.gurufocus.com/economic_indicators/62/corporate-p...
They're not currently breaking records and they jumped into this range during a period of notoriously low inflation (by historical and absolute measures).
The bottom 10% are doing a lot of job hopping these days.
I'd bet that the theory you are using doesn't care a bit if prices go down or salaries go up.
I say that because no, no reasonable economic theory predicts prices go back down after a high inflation. That's because this is very obviously false. (Maybe a few go down, by a small bit. Certainly not on average.)
Kroger's gross profit barely moved over the three operating years during the inflation wave. Their sales increased by 12% across three years combined. Which is another way of saying in real terms their business shrank over three years. Their gross profit margin was 23% in 2021, and it's 22% now. They're one of the giant primary grocery stores in the US, if there was money to be made from price gouging consumers on the grocery price spike, where are the results?
Walmart's gross profit margin for 2020 was 24%. It's 24% for the last four quarters. Their operating income margin in 2020 was 3.9%, and it was 3.4% for the last four quarters. Where's the big spike in profitability? The greatest operating retailer in history, with enormous leverage over vendors, if they can't take advantage of a supposed price gouging bonanza, who can? Their operating costs are going up faster than sales.
Hershey, like a lot of candy makers, has raised prices by a lot during the inflation wave. Seemingly well beyond the rate of inflation. And yet both their gross and operating income margins have barely moved. Their operating income margin was 22% in 2020, and it's 23% for the last four quarters. They raised prices by 30-50% in stores, so why didn't their profitability margins soar? Their costs went up a lot. Their sales went up by 40% from fiscal 2019 to the latest rolling four quarters, their cost of revenue went up by 41%.
Kraft Heinz has raised prices like everybody else and has barely seen any sales increase since 2020. So they're another contracting business. Their gross profit declined while their sales slightly went up over that time, so their margins are getting worse and their costs of operating are going up. Their operating income has dropped.
Mondelez has raised prices like everybody else. Their gross profit margin in 2019 was 40%, and in the last four quarters it was 38%. Their operating income margin was 15% in 2019, and it's 15% for the last four quarters.
Is it the oil companies? Oil is $80. That's ~$62 in 2013 dollars. Clearly not the problem.
How many examples do you want? Where's the corporate price gouging showing up in fact? All I keep seeing is empty blame being cast without a lot of proof to go with it, despite the fact that we have access to vast amounts of public corporate financial information related to sales and profitability.
It's a blame the corporations propaganda device, because the alternative is to face the music as it pertains to the consequences of magic free money being endlessly 'printed' and pumped into the system by the trillions of dollars to keep everything propped up (the inflation consequence is damaging to Keynesian economics in terms of reputation).
The mainstream narrative for example about Japan has been deflation, deflation, deflation. Back in reality their currency has been hammered by intentional debasement (to try to deal with their drowning-in-debt problem) and their standard of living has imploded along with it. The direct consequences of their grand Keynesian experiment in gigantic state spending. While all the propaganda was targeted on deflation, they were inflating their currency by a lot and eroding the standard of living of their people.
- more spending
- lower taxes
- COVID bailouts
- social insurance
- constantly rising home prices
Many of these are very worthy things. But to not expect inflation and even to blame inflation on others is just nuts.
Because their stock buybacks and other executive compensation did.
This is public information.
It’s really weird how we also publicly acknowledge the ability of companies to hide profits, but when it comes to actually discussing corporate greed, in comes the bootlickers to drop their “wHY AReNT PrOFiTS SoArINg ThEN?!?”
We can see where as much as they want us to see is going: a couple people and a couple board members.
All that really matters here is that we stop pretending that Walmart doesn’t have an army of lawyers and accountants making the public books appear however they want us to see them.
* health care
* housing
* cars
* food
It's hard not to feel like these markets each manifest a collective behavior of, "we know we're essential, so we are free to set prices as we wish because you have no real alternatives." It benefits all the players to play along, you don't even need to prove collusion. And there's no way to push back on it collectively. I realize some of them are due to limited supply (housing) or pure necessity (health care). But cars? I'm paying 10k more for the same thing I bought in 2016?
Were you not around in the US (and many other places) in 2008-10? Prices can definitely fall.
If my income and benefits had tracked with inflation and promotions I wouldn't mind.
But I got promoted and lost 20% of my purchasing power in real terms.
When they say soft landing they really just mean they believe they can break things just enough to cool down the economy and get back to the magic number of 2-3% inflation.
However price increases are inflation, and inflation in one area of the economy can occur simultaneously to deflation in another area. The net result will be the official inflation rate.
In the US, the Fed and the Treasury both do things that can impact inflation/deflation in broad AND targeted ways. However these policy instruments sometimes have effects that were not strictly intended, and sometimes non-policy-related economic factors create inflation/deflation.
If you print dollars (created out of nothing), the value of each dollar goes down, since nothing of value has been created or destroyed. You have more dollars chasing the same value.
But of course the official narrative has to shield the Fed from criticism, so they can run the dollar machine with impunity.
like they print a billion today, we dont see the inflation effect for a couple of years.
there are other effects that trigger inflation as well.
Inflation decreases, retailers begin lower prices to increase sales. There's a delay between all of this. This process happens over 1-2 years, much slower than prices going up.
This does not happen in a market with monopolies however, which is why it is vital to lower the barrier of entry into markets (decreasing stupid regulations that get "exceptions" in the real world), or use FTC or other state agencies to break up suppliers.
Or event bet, reduce our tax code / and or change it so that vertical integration stops being a thing.
Oh, and it'd help if the federal reserve stopped wholesale printing worthless money to try to keep up with absolutely reckless spending by the federal government.
PSA: whenever someone calls a concept "basic economics", don't just take their word for it.
It seems the true needs of survival need to be sufficiently expensive otherwise you can't boss people around.
The problem isn't obesity, it's calories.
The problem isn't expenses, it's income.
Inflation is literally defined as prices rises in response to increase in currency....
Just the first part. An economy with constant money supply can experience inflation if its production is knocked offline, e.g. in a war.
No it's not. When Friedman said that "inflation is always a monetary phenomenon" he was saying that inflation is caused by a mismatch of money supply and economic capacity. You fix inflation by tweaking the money supply, but the cause may have been either the supply or capacity side.
And since when did an economic theory become part of the definition? Inflation is an old word that far predates Friedman or the central currency system.
The workaround is to get so large, that only the government could possibly compete with you, then you control prices.
https://www.investopedia.com/ask/answers/031815/why-are-ther...
But there's no such thing as a perfectly competitive market.
A profit would be nice, but there's more to it than profit, e.g. paying the bills and social stability.
Most things an average American would buy in 1923 are cheaper now in real terms. We just have more categories of things we purchase.
I'm also quite sure that I don't want to go back to 1923 medicine (or even 1923 housing; despite the bones of my house being approximately that old, the 2023 version has vastly nicer lighting, insulation, HVAC, and kitchens/baths).
These three areas of our economy are broken. Granted. But they also illustrate my point. 1920s tenements, education standards (most people didn’t go to college) and medical practices (most people didn’t have an annual physical) were objectively inferior to our standards today.
Prices went up. But so did what and how much we’re consuming.
The problem is inflation.
We should prioritize basic economics and basic mathematics in education, even for people who will go on to get humanities degrees and write for Vox (about business & economics, no less).
Someone who doesn't understand how multiplication and inflation works should not be allowed anywhere near a big news publication.
"Emily Stewart covers business and economics for Vox. She has written about a wide range of topics, including Elizabeth Warren’s political roots, the motivations driving the crypto space, and what’s going on these days with the Beanie Baby market. Stewart is the author of a monthly newsletter, The Big Squeeze, that examines the ways ordinary people are being squeezed under capitalism and the scams — legal and illegal — that are constantly trying to sucker us."