Inflation is happening because corporations are realizing that they can just keep raising prices and people will just... keep buying things. Rinse and repeat.
Record corporate profits are the key indicator here.
It's even possible for inflation to occur when people don't keep buying things, because inflation is measured in terms of price alone, not transaction volume, and not revenue (price x volume).
Rent, house prices, healthcare have skyrocketed way above inflation last few decades, people can't not buy these things. College prices too, if you're middle class you can't not buy this either.
American economy has been putting the squeeze on these things for decades. Now we're going even lower on Maslow's hierarchy to food. Americans will keep paying though, there is no political energy or power in the population anymore.
Its because politician's have allowed the methods for receiving signals from the people they're supposed to be representating to be jammed.
Look at social media, if there's a narrative that's unflattering someone will create a large number of bots and shout it down in a way that distorts reflected appraisal signals. You see the same on here with anything that mentions certain keywords like China, central planning, socialism, etc.
Representatives already spend most of their time beholden to their donors after passing through the money filter, they may have sworn an oath but the most common form of incompetency is doing nothing, and worse if they're hopelessly corrupt.
Not at all. Credit availability is a function of creditworthiness of borrowers, which is largely a function of available collateral. All the Fed does is change the price.
If I get charged more interest, I simply charge more in wages/profit to cover it. Which I can do because there is a tight labour market/product market.
To be fair, although definitely some corporations are doing this, others are adapting to market circumstances caused by a few actors.
For example, if you're a retailer selling pretty much anything now, your costs are up significantly across various different streams: your rent is up, your utilities bills are up, your logistics costs are up, the wholesale price of the products you stock is up... you have no choice but to increase your prices to stay afloat. That drives a spiral because now not only are your prices higher, you also have to raise your staff's wages because they can no longer afford to buy the products you sell, pushing you to increase your prices, and so on.
Now, you are a contributor to inflation through no fault of your own, despite the key increases in cost coming from, ultimately, rising fuel costs impacting across the whole supply chain.
I agree that record corporate profits are a key indicator (although probably this should be considered in context of inflation also, rather than just the raw dollar amounts).
In large part because we've been sitting on our hands with regard to real antitrust action for the better part of the last 40 years.
This lack of real choice is hidden behind a plethora of brands all owned by the same large corporations.
And it turns out when there are like 4 large corporations that are responsible for almost everything produced in a market it's really easy to do de facto price fixing (in the sense that they [usually] aren't officially talking to each other but have unspoken ongoing gentleman's agreements) allowing all parties to get a nice share of the price gouging with no party triggering a race to the bottom.
Can you bring up a specific example of such a consolidated market for a particular commodity where more than 50% are dominated by the same conglomerate, please?
Kimberly-Clark, Proctor & Gamble, Edgewell, and Energizer comprise like 90% of the pads and tampons you'll find on the shelves in an American grocery or discount store.
The largest shareholders of all of the above are the same: Vanguard, BlackRock, and State Street. Combined, they make up ~25% ownership of all of them.
Alternatively: firearms
For a while, Cerberus Capital Management owned approximately a majority of US firearms companies by production, including: Remington, Barnes Bullets, Bushmaster, DPMS, Advanced Armament, Marlin Firearms, H & R Firearms, Para USA, The Parker Gun, Dakota Arms, Tapco, and Storm Lake Barrels. All of the above were acquired by Cerberus from 2006-2009.
All of the above were folded into "Freedom Group". That was later rebranded as "Remington Outdoor Company", then sold piecemeal three years later (in 2020).
> The largest shareholders of all of the above are the same: Vanguard, BlackRock, and State Street. Combined, they make up ~25% ownership of all of them.
As a CEO, why would sharing 25% of shareholders with another corporation stop you from exploiting their weakness, increasing your market share, increasing your stock price and in the end, increasing your bonus? You're a publicly traded corporation, your contract is public, your bonus mechanic is public, these 25% don't have any other means of control over you.
Which orifice did you pull the 50% strawman out of?
If you're going to ignore the obvious problems with massive consolidation in areas like supermarket chains and virtually everything sold in those chains or the massive problems with consolidated telecomm/ISP companies and the de facto regional monopolies they carve up then I don't think you are arguing in good faith.
It ends up being a fallacy of composition in a system that is supply constrained.
What keeps prices under control in any market is that somebody with supply capacity loses out and doesn't use that supply capacity - because the price achievable doesn't make it worth using that supply capacity.
That's the issue we have at present. There is insufficient spare supply capacity available to be brought online if prices go up. The solution is shifting consumption to investment, but at present the short term view is seen as more lucrative than the long term one.
Did you mean lower prices to increase their market share?
It's a great question. Usually that competition is what I would expect, but I wonder if there are really the proper incentives in place for competing corporations to compete. I've speculated about this a few times in the past, but corporations ultimately are accountable to their shareholders. And it's increasingly common for their shareholders to also own shares of all their competitors, which is the whole idea of buying an index.
To make more money, of course. Increasing your sales from 12% of the market to 20% of the market by offering a burger (or whatever) for $4 of pure profit instead of competitor's $6 doesn't stop the gravy train.
Only in idealized markets and even there where consumer demand is elastic. For inelastic products industries raising their prices in unison can all see greater profits because the changes in demand are outweighed by the increase in profits. So much of what we learn of markets are idealized games to make sense of extremely complex emergent systems made of people.
Within the span of a few dollars for many items people will often eat the difference for familiarity and out of habit. I don't know about you but I rarely sit and comparison shop between similar options at the store I grab the thing I'm used to and expect to get because that's the habit and lowest friction.
(Just the first useful hit I found. There are many, many such analyses. The worsening financialization of household debt has continued almost uninterrupted.)
Corporations are people, they wait for either the leading or trailing edge and then pivot. Before we had demand-pull inflation due to constrained supply chains, we are now seeing cost-push inflation, and its not about the pandemic spending as much as the Fed left the money printer on for the past 10 years under QE.
Chicken's come home to roost, and the pandemic happened after the Velocity of Money for the M2 had already dropped to nothing. Giving money to people and paying for their education was a last ditch effort after bank lending stopped in Oct/Nov 2019. The charts are all there for those that watch them.
It’s like a triggered phase change from a super heated or cooled state. Something triggers the start and the state shifts very quickly. In this case the Covid supply shock was the seed.
Things were in steady state. The actual momentary supply and demand shock caused prices to naturally inflate. And when the supply returned they noted that prices didn't go down. Now they were free to test more increases.
>Record corporate profits are the key indicator here.
We have record GDP. We also have record amounts of M2. If there were NOT record amounts of profit i'd be considered. Looking at absolute profit not charted against other metrics is embarrassingly stupid. Maybe profits are driving inflation to some degree, but saying 'record corporate profits are a key indicator' is just wrong.
I am open minded to the notion that corporate profits indicate the direction of "pain flows" in this economy dominated by inflation concerns.
The first question I would ask is: are current corporate profits breaking records in real terms, or just nominal terms ?
I don't know the answer to that.
It would be disappointing, intellectually, to learn that corporate profits are simply up in absolute, nominal dollars ...
... but I've been disappointed before.