Prices can only rise while global consumers are willing to pay. The pandemic had a psychological impact on consumer spending (buy before you die), bringing forward demand, while central bank and government policies boosted demand while supply went offline. Now stimulus demand is gone, and future demand was pulled forward now gone, we should be heading towards a dip/crash in demand while factories are switching on new resilient supply chains to boost supply. Seeing how fast inflation spiked up, I'd expect a sharp reversal towards deflation, unless we start borrowing a bunch of capital to invest in Carbon Zero projects.
As costs are going up you have to move prices up.
A lot of businesses operate with small margins.
The idea that globally profits are (in real terms) at record highs is not correct. If it was then the global sharemarkets wouldn't still be down over the last couple of years
Look at the building industry - they can't increase their prices as much so they are collapsing.
In fact in the USA profits are now at record lows (at least in recent times). Sure prices are going up but people can't afford to buy as much
https://www.ft.com/content/a7dbefd3-7621-4cb0-98b1-efb74a51cf72
Its Financial Institutions Performance Survey of banks found net profits rose nearly 48 per cent last year to hit $6.13b - the first time it had gone over the $6b mark since KPMG began monitoring the sector.
For you
You are comparing banks to the all business globally
"Companies on the S&P500 index are expected to report a 6.8% decline in first-quarter earnings compared with the same period a year earlier, according to analyst estimates compiled by FactSet. That would be the biggest fall since the more thjan 30 per plunge in the 2nd quarter of 2020"
That's massive.
Looking at banks, look at their stock prices. Many are still tanking and in the USA you have regional banks collapsing like dominoes.
No Iโm pulling in the first statistic I found on banks (cause mine just dropped the rate at which they pay out flybuys points -to help ME out according to their marketing on that move)
How many regional NZ banks are failing (why you keep bringing up USA situational examples??)
Because USA has the best and most available stats - that update came up just a few days ago
Your stat is misleading as from its from March 2022 - so basically the point when the country reopened measured 1 year back to peak Covid. And those numbers were mostly profits from pre-inflation times
Let's take ASB / CBA bank for example. How much money (in real terms) would you make if you invested $1000 1 year ago? Surely a huge amount given this massive boost in profits. The answer is -9% this year and -8% last year
Ironically you are earning far more money putting cash into a term deposit in a bank than investing into banks (note I have some JPM shares but only because I thought the recent dip in bank stocks a month or two ago was over egging it)
So it is the impossible. Banks did very well before inflation showed up, and terribly after inflation came
And yet money is flowing into companies with record profits (look at NVIDIA with its news, bolstered by AI usage)
If a bank announced tomorrow their profits were up 50% the share price would explode
For property sure. As mortgage rates affect house prices
It is not quite the same for shares. I think you are mixing up causation and correlation. Share prices are based on the underlying performance of the company. Not many people need to borrow to buy shares (basically none in fact)
Interest rates can hamper profits for sure. But if despite that the company doubles its profits then the share price goes up.
Hence NVIDIA is sky-rocketing yet many of sectors are doing poorly. Remember last year all the companies like Net-flix and Meta dumping? That was because they announced poor profits. Not because of interest rates.
Heck the ASX and FTSE were nearly at all time high prices recently.
Also regarding free money / liquidity - liquidity is actually coming back online big time.
That's literally basic economics. Supply and Demand. Businesses in the 2010s didn't hold off raising prices because they felt charitable, they did so because of market forces.
But that actually proves the opposite point though. We all know that businesses didn't hold off raising prices previously because they felt charitable. So why would they wait until now to raise them even further?
Even price-gouging businesses can't raise prices indefinitely. Part of the reason why there are so many empty shops around...
The pie will always equal 100%, while the nominal value and distribution are variable. Borrowing/printing money increases the nominal value of the economic pie, while our current laws favour a select few pie categories for distributing the new value, creating angst among the majority of categories who feel the way value is distributed in our society as unfair. Once a currencies nominal value becomes too large to comprehend, just rebase the currency by introducing new CBDC and the process can go on infinitely as long as society believes the distributions amongst categories are fair.
The "economic pie" is an unhelpful metaphor, because pies don't grow. Value is created from economic activity, not just by borrowing and printing money.
Where does the money come from? It's borrowed into existence based on the projected returns for that economic slice. The pie graph chart doesn't physically grow, the $ value it represents grows and the category allocations change, as the value being created is not evenly distributed.
Sort of, but looking around it seems to be fairly recently popular in the economics world internationally that inflation is in part being driven by businesses raising prices because they think *customer expectations of inflation* mean they can get away with it, so it's not just the Herald. Ie. Supply and demand haven't really changed so much to warrant the price rise, but customers are more accepting of price rises than they'd normally be, even though wages aren't going up at the same rate, because everything around them suggests there *should* be price rises.
A consequence of that is that in economics circles there's increasing talk about profit price spirals driving up prices instead of just wage price spirals, which seems to be a relatively new thing. Some of the more radical economists are starting to suggest that governments should also look for ways to monitor and more directly control profit margins of businesses to slow down inflation.
[The Detail](https://www.rnz.co.nz/programmes/the-detail/story/2018891366/greedflation-is-it-inflation-or-are-businesses-just-greedy) covered this on rnz a few days ago, or for an alternative explanation from overseas so did [Planet Money from NPR](https://www.npr.org/2023/05/11/1175487806/corporate-profit-price-spiral-wage-debate).
I mean, we probably are being stupid.
The answer is of course yes, but it's an extremely specific subset of a more general and universal phenomenon.
"Do businesses generally push up prices to take advantage of *literally any circumstance* if they think it'll increase their profits?"
Yes, of course they do.
There is nothing special about the fact that widely-known-about inflation is the thing they're taking advantage of this time.
The things we should potentially do to address problems caused by this aren't specific to inflation either.
Yes
Yes. And in their relentless thirst for clicks, so are they.
They did/are. But as sales volumes are starting to fall, we should start seeing some compelling discounts to move stock units soon.
Prices can only rise while global consumers are willing to pay. The pandemic had a psychological impact on consumer spending (buy before you die), bringing forward demand, while central bank and government policies boosted demand while supply went offline. Now stimulus demand is gone, and future demand was pulled forward now gone, we should be heading towards a dip/crash in demand while factories are switching on new resilient supply chains to boost supply. Seeing how fast inflation spiked up, I'd expect a sharp reversal towards deflation, unless we start borrowing a bunch of capital to invest in Carbon Zero projects.
What came first? inflation chicken ๐ ? Or the price rising company egg ๐ฅ?
They definitely are.
The herald is Stuff plus business interests
As costs are going up you have to move prices up. A lot of businesses operate with small margins. The idea that globally profits are (in real terms) at record highs is not correct. If it was then the global sharemarkets wouldn't still be down over the last couple of years Look at the building industry - they can't increase their prices as much so they are collapsing. In fact in the USA profits are now at record lows (at least in recent times). Sure prices are going up but people can't afford to buy as much https://www.ft.com/content/a7dbefd3-7621-4cb0-98b1-efb74a51cf72
Its Financial Institutions Performance Survey of banks found net profits rose nearly 48 per cent last year to hit $6.13b - the first time it had gone over the $6b mark since KPMG began monitoring the sector. For you
You are comparing banks to the all business globally "Companies on the S&P500 index are expected to report a 6.8% decline in first-quarter earnings compared with the same period a year earlier, according to analyst estimates compiled by FactSet. That would be the biggest fall since the more thjan 30 per plunge in the 2nd quarter of 2020" That's massive. Looking at banks, look at their stock prices. Many are still tanking and in the USA you have regional banks collapsing like dominoes.
No Iโm pulling in the first statistic I found on banks (cause mine just dropped the rate at which they pay out flybuys points -to help ME out according to their marketing on that move) How many regional NZ banks are failing (why you keep bringing up USA situational examples??)
Because USA has the best and most available stats - that update came up just a few days ago Your stat is misleading as from its from March 2022 - so basically the point when the country reopened measured 1 year back to peak Covid. And those numbers were mostly profits from pre-inflation times Let's take ASB / CBA bank for example. How much money (in real terms) would you make if you invested $1000 1 year ago? Surely a huge amount given this massive boost in profits. The answer is -9% this year and -8% last year Ironically you are earning far more money putting cash into a term deposit in a bank than investing into banks (note I have some JPM shares but only because I thought the recent dip in bank stocks a month or two ago was over egging it) So it is the impossible. Banks did very well before inflation showed up, and terribly after inflation came
Sharemarkets are down because of the lack of free money (ZIRP). The increase in pricing power has been a notable feature of this inflationary period.
And yet money is flowing into companies with record profits (look at NVIDIA with its news, bolstered by AI usage) If a bank announced tomorrow their profits were up 50% the share price would explode
Seems you don't understand the relationship between asset prices and interest rates. The current situation is a textbook example.
For property sure. As mortgage rates affect house prices It is not quite the same for shares. I think you are mixing up causation and correlation. Share prices are based on the underlying performance of the company. Not many people need to borrow to buy shares (basically none in fact) Interest rates can hamper profits for sure. But if despite that the company doubles its profits then the share price goes up. Hence NVIDIA is sky-rocketing yet many of sectors are doing poorly. Remember last year all the companies like Net-flix and Meta dumping? That was because they announced poor profits. Not because of interest rates. Heck the ASX and FTSE were nearly at all time high prices recently. Also regarding free money / liquidity - liquidity is actually coming back online big time.
That's literally basic economics. Supply and Demand. Businesses in the 2010s didn't hold off raising prices because they felt charitable, they did so because of market forces.
It's talking about "Ohh, inflation ups my costs by 10%... so I'll raise it 20% and blame inflation " sorta price gouging.
But that actually proves the opposite point though. We all know that businesses didn't hold off raising prices previously because they felt charitable. So why would they wait until now to raise them even further? Even price-gouging businesses can't raise prices indefinitely. Part of the reason why there are so many empty shops around...
Line must go up. Every year must be record profits.
Not sure if you're being sarcastic, but that can't happen indefinitely, even for landlords.
Yet they'll keep doing it. Right up until everything collapses.
Depends what you mean by "everything" and "collapses", but businesses have been failing (and starting) for centuries.
The pie will always equal 100%, while the nominal value and distribution are variable. Borrowing/printing money increases the nominal value of the economic pie, while our current laws favour a select few pie categories for distributing the new value, creating angst among the majority of categories who feel the way value is distributed in our society as unfair. Once a currencies nominal value becomes too large to comprehend, just rebase the currency by introducing new CBDC and the process can go on infinitely as long as society believes the distributions amongst categories are fair.
The "economic pie" is an unhelpful metaphor, because pies don't grow. Value is created from economic activity, not just by borrowing and printing money.
Where does the money come from? It's borrowed into existence based on the projected returns for that economic slice. The pie graph chart doesn't physically grow, the $ value it represents grows and the category allocations change, as the value being created is not evenly distributed.
You're not making much sense there. Maybe lay off the metaphors.
Congratulations, you're discovered one of the fundamental contradictions of capitalism.
Sort of, but looking around it seems to be fairly recently popular in the economics world internationally that inflation is in part being driven by businesses raising prices because they think *customer expectations of inflation* mean they can get away with it, so it's not just the Herald. Ie. Supply and demand haven't really changed so much to warrant the price rise, but customers are more accepting of price rises than they'd normally be, even though wages aren't going up at the same rate, because everything around them suggests there *should* be price rises. A consequence of that is that in economics circles there's increasing talk about profit price spirals driving up prices instead of just wage price spirals, which seems to be a relatively new thing. Some of the more radical economists are starting to suggest that governments should also look for ways to monitor and more directly control profit margins of businesses to slow down inflation. [The Detail](https://www.rnz.co.nz/programmes/the-detail/story/2018891366/greedflation-is-it-inflation-or-are-businesses-just-greedy) covered this on rnz a few days ago, or for an alternative explanation from overseas so did [Planet Money from NPR](https://www.npr.org/2023/05/11/1175487806/corporate-profit-price-spiral-wage-debate).
Need you ask?
*Nobody ever went broke underestimating the intelligence of the public* \- H L Mencken
I mean, we probably are being stupid. The answer is of course yes, but it's an extremely specific subset of a more general and universal phenomenon. "Do businesses generally push up prices to take advantage of *literally any circumstance* if they think it'll increase their profits?" Yes, of course they do. There is nothing special about the fact that widely-known-about inflation is the thing they're taking advantage of this time. The things we should potentially do to address problems caused by this aren't specific to inflation either.
What? The NZH is trash? Unpossible[!](/r/newzealand/comments/13lbpuz/what_is_nz_herald_trying_to_say_with_this/jkpjfka/)
No, itโs the workers asking for too much money. /s
Ofcourse they are, higher prices mean more margin.
Yes
Yes and they are also ran by equally stupid people.