[whimsicalism]

> Real inflation seems to be due to price gouging by companies

Yes, it is too bad that our previously benevolent corporations all decided to end that benevolence in the year 2021 and gouge prices.

> crash the economy for his buddies on Wall Street

Of course, exactly what Wall Street wants.

[wcarss]

It wasn't said that corporations were good but now are not, and it is not a requirement for the above to be relevant or true.

The theory is that corporations will price at the highest price the market will bear and know that price from price tests they are willing to perform. "Inflation in the air" gave them all an impetus to more aggressively explore the space of prices consumers would bear, and it turns out, people who eat chips mostly won't stop buying them when they're 1.5x the price and the packaged weight is cut by 25% over a 2 year period -- and the same follows for a huge number of similar goods.

This is an acceleration of processes that were already under way, but it's also likely enabled by, likely not directly caused by, and likely feeding into "inflation", and it's likely not something that rate changes will directly impact -- though, maybe a second order change, e.g. a crash to the economy, could hurt workers to such a degree that they simply cannot possibly both buy chips and live. That might finally curb price hikes and would indirectly have fought inflation.

[whimsicalism]

The straightforward solution is that measurable surging consumer demand in durable goods allowed firms to set higher prices.

Your theory around sticky prices doesn't explain firms running out of things despite keeping increasing inventory.

Certainly, prices can be sticky and may be less sticky during the pandemic but firms still have to compete with each other on cost.

[whimsicalism]

It doesn't take a genius to see there is spiking demand

https://fred.stlouisfed.org/series/DGORDER

[guyzero]

It's an unexpected result that shortages of core consumer goods - specifically gas and food - cause a rise in prices due to demand but this has become more decoupled from underlying input costs thus... high corporate profits in these areas. It's true that Exxon isn't any more or less rapacious than ever, but their profits are objectively much, much higher.

[whimsicalism]

Of course it depends on the market but many of these "shortages" are only relative to record-high consumer demand for durable goods.

Yes, during periods of extremely high demand relative to current supply, profit for suppliers increases. This encourages new entrants to the market who can help boost supply.

This is just the basic functioning of the economy and price signals in action. If producing things in short supply weren't profitable, that short supply wouldn't get resolved.

[guyzero]

Gas prices are significantly higher than 2019, total vehicle miles travelled are about the same (https://fred.stlouisfed.org/series/M12MTVUSM227NFWA) so there must be a reduction in supply or just straight price gouging to justify the price increase.

[whimsicalism]

There are both supply shocks and demand shocks. Gas prices are definitely undergoing a supply shock right now, which contributes to the price increases (and which the Fed can't help.) But there are also broad-based demand increases.

[guyzero]

I agree with your first statement but per the data on aggregate miles travelled I disagree there's actually a demand increase. Ultimately the Fed can't control either supply or demand directly but they try to indirectly control demand by increasing the cost of borrowing. Will it work? Consult your magic 8 ball.

[whimsicalism]

My statement about demand and supply shock is about the broader economy. Gas price is not the only indicator or driver of inflation.

In the case of gas, supply issues predominate, although it is worth noting that price of gas going up and number of miles staying the same indicates both supply and demand shocks at the same time.

The Fed has almost perfect control of aggregate demand. Inflation is more challenging because it bakes in expectations.

[sokoloff]

Is there some shortage of oil or gasoline that I'm not aware of?