Big Macs and the Cost of Living Crisis | Hacker News Reader

Big Macs and the Cost of Living Crisis

abc.net.au

This is an overdue submission from mainstream media. The good thing is that this particular inflation example cannot be denied.

33% increase in food prices can be seen in many other products. The general inflation is of course due to reckless COVID spending and rising energy prices as well as reckless and ineffective sanctions.

33% increase also applies to health insurance in Europe as well as rents.

Now, I wish we had journalists who would pick up these issues in a timely manner and not two years after the damage has been done and is too big to ignore.

>The general inflation is of course due to reckless COVID spending and rising energy prices as well as reckless and ineffective sanctions.

Reckless spending played a part, but a major (if not the biggest) component was every company getting it into their heads to "test the price advantage" of their products. This amounted to jacking up prices knowing people would suck it up and buy, lying that it was "supply chain" forcing their hand, and simultaneously posting record profits every quarter for three years after the vaccine dropped.

> Reckless spending played a part, but a major (if not the biggest) component was every company getting it into their heads to "test the price advantage" of their products

What makes 2022 so unique that just now corporations figured out they can raise prices? Why haven't profit margins taken off in 2022 [0] ?

These always struck me as bad explanation. Mostly hand waving. I think a more reasonable explanation is that increasing the money supply over 30% in a few years resulted in prices and asset levels going up ~30%.

[0] https://www.gurufocus.com/economic_indicators/62/corporate-p...

I don’t know the answer, but I have noticed something clearly rather odd going on in the grocery sector/industry, an industry that was probably the least affected by the lockdown command economy than any industry and by far margin.

There is one niche but growing discount grocer that effectively has prices similar albeit elevated, from pre-lockdown prices, while other larger, mainstream general grocers have far higher prices, as measured by staple goods like eggs, milk, beef, chicken, etc.

> What makes 2022 so unique

COVID was the omni-excuse. You didn’t have to say “we’re raising prices because we want to make obscene profits.” Instead, you could shrug sympathetically with the customer and say, “well, you know, times are tough. It’s hard to get the things you need, and we’re trying to get this at a price as affordable as we can… oh, also, hit the tip button on the screen from now on because our staff are working so hard through the pandemic and it’s so hard to find help (at the price we want to pay).”

Never underestimate a good story.

So why didn't profit margins go up to "obscene profit" level?

The article is arguing that they did through royalty fees.

Wealth extraction is pretty much what I expected the real reason was, and all the profits went to shareholders and was not put into the economy in any real sense (I'm going to preemt the pension fund strawman here).

You also see massive shrinkflation (e.g. you know buy 3 bags instead of 2 for a lot of products) which has the same result.

> component was every company getting it into their heads to "test the price advantage" of their products

This happens all the time. Companies are constantly maximizing greed. What allowed the price increases is the available cash (due to reckless spending). If customers hadn’t been able to pay, then companies wouldn’t have increased prices.

I hear this comment a lot and it’s like saying “bob didn’t die from smoking, he died from the giant tumor.”

Strongly disagree - the price increases were possible because people are strongly resistant to decrease their quality of life. e.g.: they'll pay significantly more of their income to maintain the same level of diet and travel up to the maximum they can afford (and beyond with debt). Rather than scaling back spending and reducing social status and leisure. This isn't even irrational, as status is linked to concrete health benefits (e.g.: Whitehall studies on cardiovascular health). There's been price matching across the food and service industries, due to consolidation and oligopoly - themselves a result of financialisation. So you have the whole food industry for example, responding to the supply shocks of covid by increasing price - then realising that demand elasticity doesn't apply if they act in unison.

Consolidation and oligopoly aren’t new in the past 4 years. What is new is the trillions of cash injected into money supply.

Greed is constant. Consolidation started in the 90s and the same 4 grocery companies have owned the market for 15-20 years.

They only have ability to increase prices because consumers have more cash to spend. They would have loved to do this 5 years ago, but random $30k household income families of 4 didn’t get $16k handed out to them. (Two $2k/person stimulus rounds in 2020 and 2021)

This is happening cross nationally - and very few nations gave out covid payments similar to the US.

Side node - this is just a strange lens, for most people in Ireland (where we did receive covid payments) they were making up for work which had evaporated. Why is it always assumed to be additional to income in the US?

Not true actually. Many/most countries did massive increases in money supply. [0]

I don’t know exactly how each country compares to the US and was only using the US because of others in thread and that’s what I know best.

In the US it’s assumed to be additional income because you can measure money supply and see the increase. So it’s a correct assumption because there’s just much more cash. If it was replacement, then money supply would stay level.

Also, in the US direct cash payments weren’t need based. Everyone got them despite income or necessity. Personally, I stayed employed, got overtime, and got $8k+ in direct cash deposits. Just an anecdote, but everyone I know got similar payments. So it always seemed odd to me that yuppie programmers got wads of cash. The rationale made sense as they needed to help people quickly and qualifying would slow things down.

But this is a macro example of inflation drivers. So anyone with basic economics training would recognize this example. Arguing otherwise seems silly, without lots of evidence.

Corporate greed is constant and universal.

[0] https://www.investopedia.com/government-stimulus-and-relief-...

You have companies like Kroger whose prices are out of control. One way to save significant money is to avoid them if you can.

If they have a competing grocer it is always drastically cheaper...free tank of gas per shopping trip cheaper.

They are salivating over this Albertsons merger. Easy money. Thank the gods for Walmart.

> ...then realising that demand elasticity doesn't apply if they act in unison.

So you're not actually disagreeing?

Then prices will drop because without the infusion of cash consumers won’t be able to afford the inflated prices, right?

If the inflation is strictly caused by "corporate greed", and not by an expansion of the money supply, then yes, the prices would drop.

If the inflation is caused by an expansion of the money supply and "corporate greed" is merely the proximal expression of this, and central banks do not decrease the money supply as quickly and as much as they expanded it by, then no, higher prices are here to stay.

Time and reality will tell, no need to argue this out here with people who've already emotionally made up their mind and cannot be reasoned with through rational conversation.

I agree and I think we should start ore clearly distinguishing between inflation and price gouging. Both are going on, but when we blame everything on "inflation" we're really just letting the government be the fall guy and letting corporations off the hook for whatever increase they are doing beyond the currency's actual inflation.

No, it doesn't happen all the time. Grocery prices are very sticky. Consumers notice when bread prices go up from $2.00 to $2.10, and they'll switch brands to avoid the increase.

That's why you get shrinkflation, small changes in quantity aren't as easy to notice as price changes.

Yet no one in the mainstream is willing to admit that wild inflation was largely a result of out of control money printing. Usually, this leads to asset price rise (which has outpaced inflation for decades now).

But this time, there was so much money sloshing around that it pumped assets to prices that were beyond the market’s absorption (see home prices). Once there were no quality assets left to buy, the money found its way to garbage assets (NFTs, crypto) and consumption

Admitting this would mean admitting that the foundations of the western capitalist system are weak. Little wonder why the blame is deflected to a million things, but NEVER money printing and esoteric money juju such as QE

First, the increase in the McD burger price over those 7.5 years constitutes around 4% p.a. That's certainly not great, and twice the usual inflation target, but not catastrophic.

Second, there was no "out-of-control" money printing in Australia, see [1].

Third, if there was out-of-control money printing (and there was some loose monetary policy, and at the zero lower bound this does involve expansion of the central bank balance sheet, ie QE), it was after the GFC in 2007 [2]. However, there was no inflation for a decade and a half after.

But then, the pandemic and the Ukraine war hit. Now you had supply constraints (reduced production and logistics challenges) and also increased demand (due to fiscal easing (stimulus, subsidies) during the pandemic, and people "catching up" on spending afterwards). And then there was a short bout of inflation.

Why do people keep complaining about money printing if that's not the cause for inflation?

Fourth, you find extensive discussion of all these issues in utterly mainstream media.

[1] Here's M1 and M3 for Australia (log scale).

https://fred.stlouisfed.org/graph/?g=1riAu https://fred.stlouisfed.org/graph/?g=1riAC

[2] US Fed Assets (log scale)

https://fred.stlouisfed.org/graph/?g=1riAC

Did you miss the part where I said that out of control money printing finds its place first in asset prices?

Go look at the inflation in Australian home prices since 2008

> Health insurance in europe

Uhhhhhhh

Prices here have rizen from about 100euro/month to about 150/month in 6 years (2018 was easiest to find the numbers for).

Are you under the impression that healthcare in every country in Europe is single-payer or socialized?

By the same token, generalizing the whole of Europe to say "33% increase also applies to health insurance" is a very broad brush.

I live in Germany and I pay a little over 700 euros a month for health insurance (not private, but the system of "statutory" health insurance company)

For statutory health insurance in Germany, what you pay is tied to your income, not to the cost of health care or your risk (age etc.).

There's one factor that isn't mentioned here that really should be: the cost of real estate.

Australia used to have a really good quality-of-life. This all started to change in the 2000s when housing prices skyrocketed. Now look at the median prices for Australian major cities [1]. Over $1.1 million for Sydney as the median price.

Now bear in mind that wages haven't changed that much in the past 2 decades. A good salary is still $100-200k and not much more than that. Any job you have in tech in Australia, outside of Google, is likely to still start with a 1, maybe into the low 200s.

Now if you happen to have bought 20 years ago, you're fine. If not, you're screwed. In an election a few years ago, the Opposition threatened to remove or reduce negative gearing and they pretty much lost because of it. What is negative gearing? The ability to deduct losses on investment properties against your ordinary income. Crazy, right? For a country where buying your primary residence is increasingly out of reach. More [2].

Why does this matter? It affects commercial real estate too. Now imagine 20 years ago a lot for your McDonald's franchise and the building cost $500,000. Now it's $2.5 million. That cost is built into every burger sold.

Rising house prices are simply stealing from the next generation and it cannot continue indefinitely. The end state here is a sea of housing people have to spend their entire income to pay for dotted with the occasional Aldi store and a bunch of virtual kitchens.

[1]: https://propertyupdate.com.au/the-latest-median-property-pri...

[2]: https://www.afr.com/property/residential/why-albanese-can-t-...

Here in New Delhi, an apartment I was interested in was $380k in April 2023

In Jan 2024, it was $520k

Average incomes here are $6,500. My wife, an assistant professor (with tenure) at the country’s top public university, makes $17,000.

These aren’t fancy apartments - those start at $600-800k+

Real estate prices across the world are absolutely out of control. Every young person I know is angry and distraught. People are holding off on having kids or not having them altogether because you really can’t afford to live in any major city (which, coincidentally, also have the jobs) without both the parents working full time.

> Rising house prices are simply stealing from the next generation and it cannot continue indefinitely. The end state here is a sea of housing people have to spend their entire income to pay for dotted with the occasional Aldi store and a bunch of virtual kitchens.

Exactly this. Neo-feudalism is the endgame. The 99% own nothing to their name, the 1% extract rents.

Just think about your daily life: your car is leased/financed and only has a small residual value at the end of the term, your phone is financed under contract from your provider and almost worthless at the end of the term, you live in a rental home and can't save enough for a downpayment on your own real estate, and if you're lucky enough to have been gifted/inherited some money, you still pay down debts for decades, and when you inevitably run into old age you have to sell your home to pay for medical and end-of-life care.

All that you really own in your own name is maybe some consumer goods (e.g. a laptop, computer, furniture - and an outright lot of that is financed on some sort of credit for many people) and a 401k or its equivalents. And your pittances of savings are routinely wiped out by everyday bullshit: your car breaks down, you lose your job because of capitalism rewarding mass firings on the stock market, you have health expenses that aren't covered by your insurance, you have to pay a vet because your cat ate a shoe string, some relative (or you yourself) needs to move out of their home for employment or domestic violence reasons...

>Just think about your daily life: your car is leased/financed and only has a small residual value at the end of the term, your phone is financed under contract from your provider and almost worthless at the end of the term

>a laptop, computer, furniture - and an outright lot of that is financed on some sort of credit for many people

I... can't relate. This is entirely a choice, one that advertisement tell you is the right one, but a choice nonetheless. Personally, I don't understand why people take on debt to buy shiny goods.

Yes, some of that things are necessary, but you don't have to lease a new car or change your phone every two years.

> I... can't relate.

I'm guessing you're not in dire financial straits? Is that accurate? Or you're simply not struggling to house and feed yourself (and any dependents)? Not an accusation BTW.

> I don't understand why people take on debt to buy shiny goods.

So real incomes have been hit hard since the pandemic. One interesting aspect is that the effect on consumer spending has been limited. This sounds like a good thing (from the perspective of the economy not collapsing) but it's actually not.

Why? As an enecdote, there was a Tiktok trend for awhile where people would do different versions of "my retirement plan is to die", basically. They're struggling. They might want a family but can't afford it. Or they have a family and have to have 3 jobs just to stave off homelessness. There is no time for a fulfilling life or to spend leisure time with pets, family or friends.

So the dark side of continued consumer spending (the "shiny things" you allude to) is that there is a growing hopelessness crisis and people are buying the shiny thing they cannot afford to distract from their material conditions. More importantly, they don't see that they even have a future so why not enjoy the shiny thing now?

This doesn't explain all of it. There are existing problems of people wanting to spend money, to show off how well they're doing (even if it's fake) and so on.

But I think over the coming years the level of awareness about the hopelessness crisis will only increase and it will probably rise to the level of national discourse.

> I... can't relate. This is entirely a choice, one that advertisement tell you is the right one, but a choice nonetheless.

Well, you need a phone and a computer these days to be part of society, no way around that unless you're willing to live like the Amish. And manufacturers do everything they can to force you to upgrade at least every three-ish years - Microsoft keeps upping the requirements for no reason at all (e.g. TPM requirement in Windows 11), and lots of smartphones on the budget end only come with two years worth of firmware updates after which these devices are up for grabs for malware authors and you're being a bad netizen by keeping these devices connected to the internet.

Cars are a different thing, but planned obsolescence is the norm there as well. After the manufacturer warranty expires, the repair bills come due for all kinds of shit just to keep it safe for traffic. Cars older than five years tend to become massive money sinks, even if you are capable of repairing them yourself which becomes ever more difficult and expensive as modern cars are datacenters on wheels with tons of failure modes requiring very expensive and difficult to operate tools.

And then there's the rent extraction that is paying for things. You all but need a bank account these days, depositing checks and cash costs money, cash acceptance is going down, and there's only Visa/Mastercard/AmEx left over, which extract absurd amounts of money from everywhere in the transaction chain - merchant fees that the vendors add to the price of goods, and interest on the customer side. And credit providers for all the "shiny things" and necessities of life also extract huge amounts of interest. And all of that siphoned off money ends up in the hands of the very rich.

Some countries have long standing laws which help control the price of buying a residence, so they will not have this penalty baked into their future financial situation. Basically ensure that residential property should be unattractive and unprofitable to hold commercially for renting or sitting empty.

It's important to also note that these deals from before still exist when using each fast food chain's app. They have some insanely good deals there, while they increase the costs of non-app users in order to subsidize frequent app users' cost, I suppose.

They're a nudge to move users to install the app. Using the app to redeem a deal gives them much more data on individual customers than using a coupon.

Yes however no one cares as long as they get a good deal.

That's a whole other debate and it's your subjective opinion, others may disagree.

Since you push the point:

- like many other apps, it forces you to turn on location while the app is in use (and will remain on until you kill it). You could still refuse to use the app and order at the counter, but then you can't use digital offers and specials, or redeem rewards.

- 9/2024: McDonald's (US) (app and website) changed their ToS to add binding arbitration with JAMS and dispute resolution, and waive class-actions https://www.mcdonalds.com/us/en-us/terms-and-conditions.html

- 10/2023 Parade.com: "People Are Deleting Their McDonald's App—Here's Why" https://parade.com/food/mcdonalds-app-terms-and-conditions

- 11/2023 Daily Meal: "Your McDonald's App Knows Way More About You Than You Think" https://www.thedailymeal.com/1455292/mcdonalds-app-tracks-ac...

> In addition to your finances, spending habits, visit patterns, data they gather may also inform things such as "preferences, characteristics, psychological trends, predispositions, behavior, attitudes, intelligence, abilities, or aptitudes." The policy is also vague about whether they monetize this data via reselling and/or third-party advertising.

- For anyone who wants to see how the US ToS differ from more privacy-conscious jurisdictions, compare to say https://www.mcdonalds.com/de/de-de/datenschutz.html , https://www.mcdonalds.com/de/de-de/impressum-und-nutzungsbed...

Again, the people who are regularly enough eating McDonald's are not the type of people to care about ToS or being tracked via apps. They are usually the lower class who cannot afford to care. That doesn't mean that McDonald's and other chains that offer apps do not offer good deals from them, which is what those who often enough eat there will and do use. It is the same sort of haranguing about "deleting Facebook" a decade ago, meanwhile Meta's stock continued to rise over that period. 99.99% of people who are not on HN literally do not care about any of these issues.

Ok but first you said "no one cares", I responded to that showing you that a medium-sized group of users or privacy-aware types care, now you change it to "most people who are not on HN do not care/cannot afford to care". Sure the latter is true but that wasn't what you first said. Also it's not true in the EU. And it's not "haranguing": the set of people who care about the implications of the intrusive ToS doesn't need to be the set of end-users, although yes it would impact McDonald's business practices more directly if those overlapped more.

The general public (in the US) may eventually connect data breaches to the lack of meaningful privacy legislation to the heavy lobbying to the permissive attitude between tech, regulators, politicians, data brokers and the finance industry. If the Snowflake and Okta breaches plus the huge impact of the Crowdstrike-related outage aren't instrumental in forcing some minimal standard in vendor liability, then there will eventually be even bigger and worse outages until someday that happens. Yes it's weirdly depressing to watch Congress's hate sessions against TikTok contrast with the utter silence on IT vendors' nonstop breaches. But also the 2024 election, deepfakes and GenAI are going to be big in the next three months, and might be pivotal to the election outcome, and cause a backlash comparable to or bigger than 2016. The TikTok US divestment deadline is Jan 19, 2025, which means Congress put TikTok (but not its competitors) on probation until after the election. It also looks likely Twitter/X will be strongly involved in election-related persuasion campaigns.

As to Meta, Apple has gone to war with Meta in making privacy a key selling point for iPhone. So some fraction of Meta's market valuation has been conceptually transferred to Apple's valuation.

So yes your take on the average McDonald's app user is correct, but I think the wider 2024 outlook on digital privacy is changing; we can't know how much till after the election. Remember after the 2016 election, people didn't figure out how exactly tech had influenced the outcome until March 2017. And there's more at stake in 2024.

The phrase "no one cares" never literally means that not one person cares. It refers to the demographic one is talking about, ie McDonald's app users, which is what I clarified in my earlier comment due to then predicting precisely this sort of argument taking place, which of course it did.

> If the Snowflake and Okta breaches plus the huge impact of the Crowdstrike-related outage aren't instrumental in forcing some minimal standard in vendor liability, then there will eventually be even bigger and worse outages until someday that happens. [...] But also the 2024 election, deepfakes and GenAI are going to be big in the next three months, and might be pivotal to the election outcome, and cause a backlash comparable to or bigger than 2016. [...] As to Meta, Apple has gone to war with Meta in making privacy a key selling point for iPhone. So some fraction of Meta's market valuation has been conceptually transferred to Apple's valuation.

You have more faith than I. Every single time people on HN or in the wider tech community think the general public cares about privacy (not necessarily the governments, which, while some do, most still do not), the general public show themselves time and again to not care. It is seemingly simply something immutable, because convenience is easier (by definition) than inconvenience, which is what privacy advocates impose on the public. And also, Meta's stocks are higher than ever, as said earlier, and they have largely worked around any of Apple's privacy blocks, so it cannot be said that their valuation has transferred in any part to Apple.

I guess this is probably related:

Soup Dumpling Index: How prices compare around the world - https://news.ycombinator.com/item?id=41172923 - Aug 2024 (3 comments)

I really wish editorial-style reporting would stop doing this particular style of article. It's very hard to browse and and jump between visual landmarks, whilst the dynatism offers very little for making the subject-matter more compelling.

The ABC loves this style, for some years now. I haven't encountered it elsewhere and I loathe it.

Sadly this article does not give any clue about how the evolved the income/profit of the mother holding of McDonald's. This is probably where we can check if big mac inflation went to profit and dividends or just covering expenses.

In my experience burger prices are going down this summer. Whopper and McDouble value meals are reasonably priced now, and coupons for Big Macs are more plentiful.

The worst part is the shrinkflation which is the biggest insult as this occurs.

Governments cannot handle the money printers and elastic currencies are a scam.

When they talk about things "costing more", I think that framing is confusing. Things don't cost more the dollars instead cost less.

Both can be true at the same time. Items can demand more purchasing power after adjusting for inflation, and the sticker price can be more because the money is devalued. In many (most?) countries worldwide, both have happened to an extent.

Things can increase in value independent of a currency's change in value, so while dollars costing less may tell some of the story, it does not necessarily tell the entire story.

Why does the y-axis of the price chart not start at 0?

Because it never cost 0.

It's usually wrong to set the y-axis to 0. The whole point of a graph is to illustrate the change that you're talking about. Imagine a graph of global temperature, for example, where you decide to use Kelvin. Set the y-axis to 0 and look! There's no noticeable change at all. Global warming is a myth!

You should set the y-axis so it shows the normal variation and then you can see if recent changes are outside of that.

I also wish they'd add a title to the y-axis; defeats the purpose of a dynamic chart if you can't tell what is being charted at a glance.

Same reason the x-axis doesn't.

Is it just me that's a little perplexed by this article? It begins with a promise to explain what drives burger prices and what it tells us about the cost of living. It then concludes that the prices are driven by some nebulous combination of forces and says nothing about the cost of living.

“This is why interest rates are an effective tool for lowering inflation”

Increasing interest rates just increases government transfer payments but the money goes to people who already have money, and they happily spend it.

Any reduction in spending is matched by an increase in a different demographic.

Once the central bank starts increasing interest rates that’s what drives inflation.

The real reason increasing interest rates is a popular response to inflation is because of academic capture by right wing libertarians, all to benefit the wealthy.

After all, if there are inflationary pressures it’s the creditors that lose out unless they can charge more interest.

It's easy to criticise, but what do you recommend? Lowering interest rates to fight inflation? I think Turkey keeps trying this, without much success.

The #1 thing that brings prices down in a market economy is competition. Fiscal policy is the best policy tool for ensuring a level playing field, ensuring full employment and price stability. Monetary policy is good for nothing! ZIRP forever

More than one interest rate, for starters. Why do home purchasers have to suffer while the fed reigns in funny-money (buying stock with no interest loans) "investors."

Low interest rates seem to help Japan keep inflation (and thankfully, big mac prices) low anyway.

Japan has been fighting with deflation for a long time, and kept rates extremely low as a consequence, and also engaged in QE.

TLDR:

> McDonald’s royalty fees, which redirect profits overseas, went up by 29 per cent that year — more than 10 times faster than its sales did.

For Australia, it's not wages or ingredients, it's royalty fee.

Cultural-dominance payments to the old US of A. What about going to Bluey Burger instead? I know I would!

Discussion by actual Australians :

https://old.reddit.com/r/AusEcon/comments/1ek6rk0/whats_driv...

The most important quote is :

Do you seriously think McDonalds has that much market power to be able to raise margins without any issue? If you're having trouble finding an alternative to McDonalds, you might need to reconsider your weight mate.

Also, this ABC article is fucking bullshit, putting quotations on domestic profits. The RBA calculates the profits based on the sales and costs accrued domestically, and profits are usually offshored through transfer pricing or intercompany lending after the fact. Hence, the calculation of their measure regarding profit margins and profit share as a % of the economy accounts for offshoring as it considers the sales and costs a company incurs before any of this income is shifted overseas.

Not only that, but I also don't think McDonald's has the market power to raise its profit margins as high as a telecommunications monopoly when you can walk yourself down the road for a cheaper burger that's better in quality. There's a reason why the sales for McDonald's are going down. If you can't handle McDonald's raising its prices, eat a god damn salad.

please don't bring reddit rhetoric to HN.

Reply on news.ycombinator.com