[dools]

> This is a measure of where inflation "goes", not what fuels inflation. The narrative that profits are "fueling" inflation is completely made up and the people pushing it are lying to everyone for political reasons.

Inflation is an increase in price level. When prices go up, one might consider that the price of inputs has gone up, or that profits has gone up, or both.

If the inputs go up, and the price stays the same, profits would go down, and there would be no change in price level. If companies are unable to be profitable in the face of rising inputs, they will collapse.

If inputs go up, and profits stay the same, prices would increase in line with the increase in inputs, ie. an increase in price level, ie. inflation.

If inputs go up, and profits increase, then prices will increase more than the cost of inputs would dictate, ie. inflation.

You can't say that the price increase in things like fuel and food were the result of profligate government spending, because that would suggest people are taking money they received from the government as covid stimulus and increasing their consumption of food and fuel.

You can't say that price levels have increased because of increased labour costs, because real wages have declined.

You can't say that companies have increased prices only sufficiently to offset the increase in inputs, because then profits would not have increased.

What you can say, though, is that the cost of inputs went up, there was a fiscal stimulus due to covid, people had increased spending power, and companies that sell "must haves" increased their prices to absorb that increased spending power, over and above what was required to satisfy increased input costs.

Then, because price levels went up (due to increased profits absorbing additional spending power) governments increased interest rates, making things more expensive for the very people whose increased spending power had just been absorbed by said companies.

[dageshi]

If a company has for sake of argument a 10% profit margin on an item and seeks to maintain that 10% profit margin after an increase in its input costs then is that unreasonable?

In dollar terms its profits have gone up but as a percentage they haven't.

[dools]

I think it's reasonable for companies to want to have infinite profits and $0 in costs to produce. That's what they're supposed to do.

My point is that when the OP says "inflation is the result of monetary/fiscal policy" (EDIT: paraphrased, not quoted, improved accuracy of paraphrase) it's inaccurate: people did not spontaneously choose to consume more food and fuel because they had increased spending power, but those prices went up and so did profits

So some companies are able to increase prices disproportionately because of their unique position as price setters and lack of competition. They absorb any increase in spending power and/or fiscal stimulus. Increase in interest rates absorbs whatever is left over.

As those price increases filter through the economy, price levels increase further and so on.

If there was more diversity in the food and energy sectors, then prices would not have increased as much as they did, and the increased fiscal stimulus would have dissipated throughout the economy, making its way into the pockets of more small businesses.

Now: should the government not stimulate the economy? Well, I doubt it, then people would have been really in the shit.

Should the govdernment better target their stimulus? Absolutely, I know in Australia it was very inequitably distributed.

Should the government implement policies to prevent those sectors with the least competition from hiking prices to absorb fiscal stimulus meant to avoid recession, thus keeping a cap on price level increases? I think so.

And I think the linked article does a good job of demonstrating the way in which "profit-price" interactions are a better way to think about inflation rather than "wage-price" interactions, and thus why it's unreasonable to expect labour to shoulder the burden of suppressing inflation, rather than capital.

[dageshi]

I don't think op did say "inflation is the result of government spending" he said it was the result of excessive monetary stimulus. In other words the action of the federal reserve.

[dools]

OP did say:

> (sometimes fiscal policy, sometimes both)

Although it's also clear that monetary policy alone cannot stimulate the economy, otherwise there would have been a correlation between ZIRP and economic growth, and there wasn't.

Fiscal policy does stimulate the economy, and if properly targeted this can be done without inflation risk.

OPs main claim here is that the article is "fake news" because government monetary and/or fiscal policy is the main driver of inflation. While it may be the case that governments did stimulate the economy, the bulk of price level increases are not increased caused by demand (ie. people deciding to buy more stuff) but a combination of increase in inputs (supply problems) and monpolistic price setting by poorly regulated companies.

I concede that one might say that, in the absence of any government stimulus, there would also have been no price level increase, but I would also contend that in the absence of such a stimulus there would have been a depression and that a price level increase could have been avoided through better targeted stimulus and better regulation of companies.

[polygamous_bat]

> In dollar terms its profits have gone up but as a percentage they haven't.

Citation required.

[dageshi]

I can't say whether that's actually happening or not, all I can say is it's a reasonable explanation as to why profits would be going up for many companies.

[dools]

The article we are discussing cites:

On Thursday Qantas posted $1.4b half-year profits, tripling revenues

On Wednesday Woolworths posted a 25% rise in profits. Supermarket profits have soared on the strength of rapid food price inflation.

On Tuesday Coles net profit grew 11% in the latest half-year result announced Monday, beating forecasts.

On Wednesday Santos posted a 221% annual profit

Ampol, Australia’s largest oil refiner, reported a 30% increase in first-half net profit, buoyed by soaring petrol prices.

Commonwealth Bank posted a record $5.1b billion profit, up 9%, buoyed by extra interest income from rising interest rates

In every case the increase in profits exceeds inflation, so the increase in profits is definitely not simply a case of percentages remaining the same.

[pcthrowaway]

Who had increased spending power exactly? I was under the impression the stimulus was mainly directed towards people who had suffered wage loss due to covid.

[jrs235]

Some of the money went to folks who lost jobs. A lot of money also went to business owners who were supposed to use it "to not lay people off". Many probably didn't even need the money but took it because "free money". The number of business owners who bought new "toys" (i.e. cars, boats, etc.) or second and vacation homes during a time of supposedly difficult financial times is daunting...

Think about this: the cost to write off outstanding college loans is ~$350 billion. This amount was accumulated over a few decades. ~$700 billion was given to business owners in under a year...

[danaris]

One of the powerful things about the stimulus is that it was undirected—that money (I no longer recall the precise amount per household—$1200? $2000? somewhere in there) was just given to every household in the US.

[dools]

Well ... if you think about it the additional spending power was sitting somewhere right? People lost their jobs because other people weren't spending. The people who didn't spend, kept their money. Then the people who laid off workers, kept their money. The government added money to close the spending gap. It's a perfectly reasonable policy, HOWEVER I know that in Australia definitely (and probably in the US) it was very poorly allocated, so people and firms who really shouldn't have had any extra income were granted it and some others who really needed it, didn't get it.

On balance, increased government spending adds net financial assets to the private sector and increased taxation removes it.

So did the government need to just "tax back" the money it spent into the economy? Maybe in some ways, but certainly not from the people it gave it to and maybe not at all. BECAUSE during the time when there was a recession avoided by stimulus, the population also grew so there should have been some economic growth during that time anyway.

As such, probably, what should have happened is that the government should have done things to ensure that the (very few) parts of the economy that benefit wildly from lack of competition and dysfunctional markets (like food, energy and housing) didn't accumulate all of the growth that should have been more evenly spread around.

In Australia, we need the government to build roughly 100,000 public houses per year, and we need to dramatically increase net migration to achieve that; but since we're an economy dominated by religion, mining, finance, real estate and insurance that's unlikely to happen. We actually have a horrible housing crisis in this country because of the dramatic increase in single person households as a result of relationship breakdowns over covid and the tendency away from share housing in young people (who can afford it!), as well as an explosion in dwellings used only as short term rentals.

In the US you probably have many of the same problems. The inflation reduction act did some of the work to improve things but it took a while to get it through because Manchin and Sinema fucked the recovery for everyone (as Bernie said: "give us more democrats").

This is the best discussion on inflation I've seen:

https://www.levyinstitute.org/publications/is-it-time-for-ra...