OK: Inflation as the % increase of a price compared to a previous period, whereby lower inflation means lower % increase of a price compare to a previous period -- 0% meaning prices have stabilized when compared to a previous period? So we get stuck with high prices, the anecdotal comment in this thread seems to give some color to that idea.
Yes, historically this is how it works. High inflation leads to higher prices which then settle, an higher salaries etc. lag but roughly catch up.
It's more useful to think of inflation as a rate of reduction of the value of money than as an increase in prices. Tools like the CPI baskets are attempts to find a measure of the "real" loss of value, but this is inherently flawed. Tools to affect it (e.g. federal rates, QE, etc.) are inherently ham-fisted and only indirectly coupled to the economic drivers of inflation, so also flawed. Companies take advantage of the variability to be more aggressive with price experiments, etc., etc. - so it's complicated.
It is multi-faceted, but maybe it seems not so complicated in that the decision to raise a price beyond a certain point is on the price-setter (right?) and that seems to be a driver of this situation, as you have stated -- using the adage (“profits are an opinion, cash is a fact."), seems like it's an arbitrary decision to make prices move up beyond a certain point...
It's not really arbitrary. Some of the underlying costs really are driven by things completely outside of your control (e.g. interest rates knock on effects).
So if your COGS are shifting you have to respond to that, but in most cases price variability is going to cause you problems (e.g. you aren't a financial market, you are selling goods) and your competitors movements are also, so you are trying to strike a balance. And maybe you are bit greedy and see an opportunity in the variability to end user, but maybe you are more worried about collapsing margin.
And this "profit" is a number derived from an price that is set to attain some difference that is "allowed by the market". Greed is baked in always, else a business cannot continue; but the smoke-screen of inflation is what is discomforting.
And I'm saying it's not really a smoke-screen, but rather it is what happens whenever there is high variability. Note that I included both greed & fear in the mix.
I guess I'm objecting to "arbitrary" rather than "how markets work".
I think we are both agreeing that there are parts of e.g. consumer grocery store prices that are inherently inflation driven (and unlikely to go down) and parts that may be opportunistic or defensive (and might) but the key think is literally nobody actually knows how to separate that cleanly. There is some hope that competition will drive out some of the additional price increase over time relative to actual value, but usually the way this happens is by letting inflation eat it, not actually re-pricing lower. We will see, but until then we'll see reports like you've linked, and others claiming otherwise, and not really know until the dust settles.
Some useful links from the Fed:
- Inflation calculator: https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1&year1=200001...
- Recent CPI Summary: https://www.bls.gov/news.release/cpi.nr0.htm