Greedflation?

[Loren Pechtel]

No, I am not. Quite the contrary. But I acknowledge that it is omnipresent. All market actors, not just businesses, want to maximize the benefit to themselves. When that desire is deemed excessive, rightly or wrongly, it is called "greed". But it is not fundamentally different than the desire of labor or consumers to maximize their benefit. Greed is not something that started in 2021 either. The title of this thread is "greedflation" - it is an attempt to claim that the chief cause of 2021-2023 high inflation was corporate greed and to discount government spending. Note that the people who pushed "greedflation" narrative also were (and are) in favor of increased government spending like the $3.5T B³ (aka Spendapalooza) and therefore have a vested interest in discounting government spending as a contributing factor to high inflation. Note that Kamala Harris will most certainly seek to resurrect B³, likely with an even higher price tag. After all, she is already proposing much higher child tax credits than even Biden did.

You were right up until this point.

The inflation spike was a combination of pent-up effects from the economic contraction from Covid and from supply chain issues. Biden is not the cause no matter how much The Felon would like to pretend otherwise.

The more processed a food is, the less it should be affected by swings in the supply of original foodstuffs. Eggs are pretty much eggs in a cardboard or styrofoam container. When supply of eggs is disrupted it affects consumer prices with little cushioning. Some processed egg product has more cost inputs, so price of eggs themselves is a lower % of the retail price. It can also be stored longer than fresh eggs, which also dampens fluctuations.
One other thing to consider is the lead-up times. If a lot of hens die or have to be culled, you have to raise more to increase supply of eggs. Which takes time - you can't increase supply overnight.
Some things have longer lead-up times than others. For example, it takes years for Christmas trees to grow to 6' (a popular size for homes) and even longer for taller trees for McMansions, company lobbies or outdoor spaces. Decisions made during the 2008 recession had effects years later.
Why are fewer Christmas trees growing in the US? Blame the Great Recession

Exactly. Most price shocks are either supply chain failures or demand changing faster than production can change.

 

[laughing dog]

Kroger News: Company Gouged Prices Above Inflation - Newsweek

While testifying to a Federal Trade Commission attorney Tuesday, Kroger's Senior Director for Pricing Andy Groff said the grocery giant had raised prices for eggs and milk beyond inflation levels.

And that's supposed to be meaningful???

Inflation was simply the mean of the supply chain shocks. Of course many goods went up more than that!

And note that milk specifically had a Covid-related market shift: more home demand, less institutional demand. The bottlers were unable to fully shift production instantly. (Which resulted in the paradoxical problem of pouring milk down the drain during a shortage.)

I haven't heard specifically about eggs but I wouldn't be surprised at the same sort of problem. And eggs have suffered from some disease-induced culls of flocks. Egg prices are all over the place anyway.

If Kroger’s increase in prices increased their profit margin, then it is meaningful. If not then no.

Doesn't even matter if they increased their profit margin. They aren't the ones deciding the price of eggs.

Of course they decide the prices they charge. They even get to decide what motivates them to charge their prices.

 

[Loren Pechtel]

I don't see anything wrong with that. Prices are not set as "cost+x", but are determined by supply and demand. If market prices rise faster than cost, profit margins increase.

You're basing your arguments on economic theory, not the reality of the situation. You're not addressing WHY the market prices increased in this case. That is the big question and the answer is most definitely partially greed.

I still see nothing that addresses the fundamental issues: when supply and demand desync companies either raise prices or sell out and have nothing to sell. So long as it remains a reasonably competitive marketplace I can't see wrongdoing in this.

 

[laughing dog]

The FED throwing people out of work to lower inflation makes me sick.

The only people the Fed can throw out of work are Fed employees.
What the Fed can do is increase interest rates so the economy runs cooler and inflation comes down. That can lead to less employment.

And note that the reality is that eventually they'll lose the jobs anyway. The only question is whether it will be due to the fed increasing rates or due to inflation messing up the economy. And the fed is far less painful overall.

Raising interest rates affects different sectors of the economy as does inflation. So it is untrue that sectors negatively hit by contractionary monetary policy would have necessarily been lost without that policy.

 

[Loren Pechtel]

Prices are not set as "cost+x", but are determined by supply and demand.

Well, yes, but actually, no.

Most companies set prices as cost plus a percentage, usually based on a naïve and often wildly inaccurate estimate of cost.

Supply and demand then influences which of their products (and indeed, which companies) thrive and which fail, so the outcome in the long term is fairly similar to what would be expected from a supply and demand perspective.

But the long term can be very long. A manufacturing company with a wide range of products is frequently unaware that some of their lines are subsidising others, and that their overall profitability could be significantly improved if they had a better understanding of costs.

1) Cost + percentage is the minimum they wish to sell an item for and will in general exit the market rather than sell below that point. Since all other providers in the space are working with pretty much the same parameters this will tend to be the maximum that can be charged, also, but that is not guaranteed.

2) I do agree that there are subsidies but they're not always to the detriment of the company. I know my former employer had some substantial "errors" in their pricing--allowing input price differences to propagate through too much to the output price. (If raw material X is twice the price of raw material Y but raw materials are 30% of the costs that means X should sell for 130% of Y, not 200% of Y.) However, the market had to be taken as a whole--if we didn't sell the cheaper stuff we would have no opportunity to sell the more expensive stuff. Or look at airlines--they make a lot more profit on the seats up front. You can't make an airline with all expensive seats, though, because you won't have the demand to fly a whole plane. Thus the cattle class in back to fill up the plane.

 

[Loren Pechtel]

Kroger News: Company Gouged Prices Above Inflation - Newsweek

While testifying to a Federal Trade Commission attorney Tuesday, Kroger's Senior Director for Pricing Andy Groff said the grocery giant had raised prices for eggs and milk beyond inflation levels.

And that's supposed to be meaningful???

Inflation was simply the mean of the supply chain shocks. Of course many goods went up more than that!

And note that milk specifically had a Covid-related market shift: more home demand, less institutional demand. The bottlers were unable to fully shift production instantly. (Which resulted in the paradoxical problem of pouring milk down the drain during a shortage.)

I haven't heard specifically about eggs but I wouldn't be surprised at the same sort of problem. And eggs have suffered from some disease-induced culls of flocks. Egg prices are all over the place anyway.

If Kroger’s increase in prices increased their profit margin, then it is meaningful. If not then no.

Doesn't even matter if they increased their profit margin. They aren't the ones deciding the price of eggs. The store will always aim to sell the last egg to the last customer. A higher price leaves them with eggs they didn't sell, a lower price leaves money on the table.

That's ridiculous. There's no such thing as "the last egg."

Sure there is--I'm looking at a slice of time, not forever.

 

[bilby]

Cost + percentage is the minimum they wish to sell an item for and will in general exit the market rather than sell below that point.

That is utter nonsense.

 

[ZiprHead]

I don't see anything wrong with that. Prices are not set as "cost+x", but are determined by supply and demand. If market prices rise faster than cost, profit margins increase.

You're basing your arguments on economic theory, not the reality of the situation. You're not addressing WHY the market prices increased in this case. That is the big question and the answer is most definitely partially greed.

I still see nothing that addresses the fundamental issues: when supply and demand desync companies either raise prices or sell out and have nothing to sell. So long as it remains a reasonably competitive marketplace I can't see wrongdoing in this.

There are none so blind as those that will not see.

‘Greedflation’ study finds many companies were lying to you about inflation

Companies like Exxon Mobil, Shell, and Kraft Heinz enjoyed bumper profits as consumers struggled with historic inflation.

fortune.com

As they rolled their eyes at the frustratingly familiar sight of price markups in grocery store aisles, shoppers in 2022 might have wondered whether corporations were doing everything they could to keep prices down as inflation hit generational highs. The answer now appears to be a resounding no.

A joint study by think tanks IPPR and Common Wealth found profiteering by some of the world’s biggest companies forced prices up significantly higher than costs during 2022.

Inflation soared across the globe last year, peaking near 11% in the eurozone and above 9% in the U.S.

The source of that high inflation has become a well-trodden line. Analysts have typically laid the blame on supply-chain bottlenecks created by excess demand during the COVID-19 pandemic and exacerbated by Russia’s invasion of Ukraine.

The war also increased energy prices, leading to further rises in inflation as suppliers factored in higher transport and running costs.

While this obviously contributed to rising prices, the report finds that company profits increased at a much faster rate than costs did, in a process often dubbed “greedflation.”

Profits for companies in some of the world’s largest economies rose by 30% between 2019 and 2022, significantly outpacing inflation, according to the group’s research of 1,350 firms across the U.S., the U.K., Europe, Brazil, and South Africa.

In the U.K., the research found that 90% of profit increases occurred among just 11% of publicly listed firms. Profiteering was more broad in the U.S., where a third of publicly listed firms were responsible for most of the increase in profits.

The biggest perpetrators were energy companies like Shell, Exxon Mobil, and Chevron, which were able to enjoy massive profits last year as demand moved away from Russian oil and gas.

Food producers including Kraft Heinz realized their own profit surges. The war in Ukraine rocked global grain supplies and fertilizer prices, significantly increasing the cost of food, which remains sticky.

The findings add to a growing body of research seeking to highlight the role of major businesses in forcing up inflation last year.

A June study by the International Monetary Fund (IMF) found that 45% of eurozone inflation in 2022 could be attributed to domestic profits. Companies in a position to benefit most from higher commodity prices and supply-demand mismatches raised their profits by the most, the study found.

CEOs of the world’s biggest companies consistently sounded the alarm on inflation as a significant barrier to growth. Many blamed rising input costs on their own price hikes. However, lots of those CEOs appear to have instead used the panic of rising costs to pump up their balance sheet.

Paywalled. Use Readerview to view the rest.

 

[ZiprHead]

Kroger News: Company Gouged Prices Above Inflation - Newsweek

While testifying to a Federal Trade Commission attorney Tuesday, Kroger's Senior Director for Pricing Andy Groff said the grocery giant had raised prices for eggs and milk beyond inflation levels.

And that's supposed to be meaningful???

Inflation was simply the mean of the supply chain shocks. Of course many goods went up more than that!

And note that milk specifically had a Covid-related market shift: more home demand, less institutional demand. The bottlers were unable to fully shift production instantly. (Which resulted in the paradoxical problem of pouring milk down the drain during a shortage.)

I haven't heard specifically about eggs but I wouldn't be surprised at the same sort of problem. And eggs have suffered from some disease-induced culls of flocks. Egg prices are all over the place anyway.

If Kroger’s increase in prices increased their profit margin, then it is meaningful. If not then no.

Doesn't even matter if they increased their profit margin. They aren't the ones deciding the price of eggs. The store will always aim to sell the last egg to the last customer. A higher price leaves them with eggs they didn't sell, a lower price leaves money on the table.

That's ridiculous. There's no such thing as "the last egg."

Sure there is--I'm looking at a slice of time, not forever.

A simple slice of time can show anything you want if you just choose the proper slice. Inflation cannot be measured by a single slice. Inflation is measured over periods of time or compared to other "slices".

The ass kissing you are giving to corporations is quite evident.

 

[Harry Bosch]

Cost + percentage is the minimum they wish to sell an item for and will in general exit the market rather than sell below that point.

That is utter nonsense.

Cost is generally referred to the direct costs (material and direct labor); but not fixed costs (rent, insurance, hr and etc. Most companies will go under if price isn’t greater than cost over time.

 

[bilby]

Cost + percentage is the minimum they wish to sell an item for and will in general exit the market rather than sell below that point.

That is utter nonsense.

Cost is generally referred to the direct costs (material and direct labor); but not fixed costs (rent, insurance, hr and etc. Most companies will go under if price isn’t greater than cost over time.

I am aware.

Doesn't make "Cost + percentage is the minimum they wish to sell an item for and will in general exit the market rather than sell below that point" true, though.

 

[Loren Pechtel]

Cost + percentage is the minimum they wish to sell an item for and will in general exit the market rather than sell below that point.

That is utter nonsense.

Calling it utter nonsense doesn't make it so.

What product is sold below this point? (When providing a range of offerings is required look at the overall, not any specific item. A base at cost + making money on upgrades from that definitely happens. As does cheap equipment with expensive supplies.)

 

[Loren Pechtel]

I don't see anything wrong with that. Prices are not set as "cost+x", but are determined by supply and demand. If market prices rise faster than cost, profit margins increase.

You're basing your arguments on economic theory, not the reality of the situation. You're not addressing WHY the market prices increased in this case. That is the big question and the answer is most definitely partially greed.

I still see nothing that addresses the fundamental issues: when supply and demand desync companies either raise prices or sell out and have nothing to sell. So long as it remains a reasonably competitive marketplace I can't see wrongdoing in this.

There are none so blind as those that will not see.

‘Greedflation’ study finds many companies were lying to you about inflation

Companies like Exxon Mobil, Shell, and Kraft Heinz enjoyed bumper profits as consumers struggled with historic inflation.

fortune.com

Your article does not address what I'm talking about: that market shortages fundamentally either will raise prices or cause companies to run out and not have goods to sell. There is no good solution for this situation, the question is which path causes the least harm.

 

[robnisch]

Loss leader - Wikipedia

en.wikipedia.org

I have seen this in retail. Walmart does it. It usually is for a short time to draw customers.

 

[bilby]

Cost + percentage is the minimum they wish to sell an item for and will in general exit the market rather than sell below that point.

That is utter nonsense.

Calling it utter nonsense doesn't make it so.

It didn't have to. Your asserting it without evidence didn't make it not so, so...

What product is sold below this point? (When providing a range of offerings is required look at the overall, not any specific item. A base at cost + making money on upgrades from that definitely happens. As does cheap equipment with expensive supplies.)

Below what point? $X + Y% is not a point, it's a formula.

You are making a lot of assumptions, failing to mention mist of them, and then chslkenging me to work within that framework. That too is utter nonsense.

 

[bilby]

Loss leader - Wikipedia

en.wikipedia.org

I have seen this in retail. Walmart does it. It usually is for a short time to draw customers.

It's very common. Big companies like to use it to drive out competition.

 

[TV and credit cards]

There are none so blind as those that will not see.

‘Greedflation’ study finds many companies were lying to you about inflation

Companies like Exxon Mobil, Shell, and Kraft Heinz enjoyed bumper profits as consumers struggled with historic inflation.

fortune.com

Your article does not address what I'm talking about: that market shortages fundamentally either will raise prices or cause companies to run out and not have goods to sell. There is no good solution for this situation, the question is which path causes the least harm.

Value is fundamental. Price is arbitrary.

 

[Loren Pechtel]

Doesn't even matter if they increased their profit margin. They aren't the ones deciding the price of eggs. The store will always aim to sell the last egg to the last customer. A higher price leaves them with eggs they didn't sell, a lower price leaves money on the table.

That's ridiculous. There's no such thing as "the last egg."

Sure there is--I'm looking at a slice of time, not forever.

A simple slice of time can show anything you want if you just choose the proper slice. Inflation cannot be measured by a single slice. Inflation is measured over periods of time or compared to other "slices".

The ass kissing you are giving to corporations is quite evident.

You're still not understanding.

Consider one day. They get in a certain number of eggs, if they price them too low they sell out before the end of the day, if they price them too high they don't sell all of them. There most certainly is a "last egg" in a specified time. The company has no ability to dictate what the optimum price is, they can only attempt to match it.

 

[TV and credit cards]

Doesn't even matter if they increased their profit margin. They aren't the ones deciding the price of eggs. The store will always aim to sell the last egg to the last customer. A higher price leaves them with eggs they didn't sell, a lower price leaves money on the table.

That's ridiculous. There's no such thing as "the last egg."

Sure there is--I'm looking at a slice of time, not forever.

A simple slice of time can show anything you want if you just choose the proper slice. Inflation cannot be measured by a single slice. Inflation is measured over periods of time or compared to other "slices".

The ass kissing you are giving to corporations is quite evident.

You're still not understanding.

Consider one day. They get in a certain number of eggs, if they price them too low they sell out before the end of the day, if they price them too high they don't sell all of them. There most certainly is a "last egg" in a specified time. The company has no ability to dictate what the optimum price is, they can only attempt to match it.

Sure they can. There's even a Wikipedia article on it. It's called Price Optimization.

 

[Elixir]

They get in a certain number of eggs,

Or, they get a certain number of egg customers.

they price them too low they sell out before the end of the day, if they price them too high they don't sell all of them

Or, they overestimate the number of egg customers, they don’t sell all the eggs they bought. If they underestimate the number of egg customers they run out early. It’s not ONLY about price.

Eggs are a perishable commodity, so it pays a retailer to know both how many egg customers they have and how much they are willing to pay, so they know how many eggs to buy from the farmer (wholesaler).

It’s different for non-perishable widgets. Greedflation is much easier to apply to variable priced widgets that one can hold onto until a customer comes in for whom that widget is immediately indispensable.