Inflation

[lpetrich]

How the supply chain caused current inflation, and why it might be here to stay | PBS NewsHour - Nov 10

Consumer prices soared in October 2021 and are now up 6.2% from a year earlier – higher than most economists’ estimates and the fastest increase in more than three decades. At this point, that may be no surprise to most Americans, who are seeing higher prices while shopping for shoes and steaks, dining at restaurants and pumping fuel in their cars.

noting
4 reasons Americans are still seeing empty shelves and long waits – with Christmas just around the corner - Oct 12

Walk into any U.S. store these days and you’re likely to see empty shelves.

Shortages of virtually every type of product – from toilet paper and sneakers to pickup trucks and chicken – are showing up across the country. Looking for a book, bicycle, baby crib or boat? You may have to wait weeks or months longer than usual to get your hands on it.

I recently visited my local ski shop and they had hardly a boot, ski, goggle or pole to speak of – two full months before ski season begins. The owner said he’s normally close to fully stocked around this time of the year.

But will that soon end?
Indicators Hint the Supply Crisis Is Over and Inflation Will Cool Soon

• Businesses have fallen short of meeting consumer demand this year. That drove prices sharply higher.
• Recent US manufacturing indicators show supply starting to match Americans' spending.
• Bottlenecks at ports are also easing, hinting the months-long supply crisis is finally wrapping up.

 

[lpetrich]

Bharat Ramamurti on Twitter: "We took a look at the most recent earnings statements and earnings calls of the big meat processing companies, and here's what we found: they are raising prices far more than any cost increases they're facing, resulting in skyrocketing profit margins. (link)" / Twitter
noting
Meat packers' profit margins jumped 300% during pandemic - White House economics team | Reuters

Four of the biggest meat-processing companies, using their market power in the highly consolidated U.S. market to drive up meat prices and underpay farmers, have tripled their own net profit margins since the pandemic started, White House economics advisers said.

Financial statements of the meat-processing companies - which control 55%-85% of the market for beef, poultry and pork - contradict claims that rising meat prices were caused by higher labor or transportation costs, advisers led by National Economic Council Director Brian Deese wrote in an analysis published on the White House website Friday.

Officials studied earnings statements from Tyson Foods Inc (TSN.N), the chicken producer and biggest U.S. meat company by sales; Brazil-based JBS SA (JBSS3.SA), the world's biggest meatpacker; Brazilian beef producer Marfrig Global Foods SA (MRFG3.SA) which owns most of National Beef Packing Company (NBEEF.UL); and Seaboard Corp RIC (SEB.A).

Those statements showed a 120% collective jump in their gross profits since the pandemic and a 500% increase in net income, the analysis shows. These companiesrecently announced $1 billion in new dividends and stock buybacks, on top of the more than $3 billion they paid to shareholders since the pandemic began.

noting
Recent Data Show Dominant Meat Processing Companies Are Taking Advantage of Market Power to Raise Prices and Grow Profit Margins | The White House


More generally, in recent years, US businesses have become more and more concentrated, reducing the number of market players in each line of business.
Corporations Use Inflation As Excuse to Boost Prices, Profits

• Large companies tend to use periods of rising inflation to boost their profit margins.
• Having fewer competitors in an industry makes it even easier for companies to raise prices.
• The current inflation rate is a "symptom" of corporate consolidation, Robert Reich says.

...
Walmart, which announced third-quarter financial results this morning, was able to post better-than-expected earnings in part by offering fewer discounts to shoppers, but a lot of large firms have spent their recent quarterly calls bragging to investors about their ability to hike prices with relative impunity.

"What we are very good at is pricing," Colgate-Palmolive CEO Noel Wallace said. "Whether it's foreign exchange inflation or raw and packing material inflation, we have found ways over time to recover that in our margin line."

"We've been very comfortable with our ability to pass on the increases that we've seen at this point," Kroger CFO Gary Millerchip said in October. "And we would expect that to continue to be the case."

 

[ZiprHead]

Consumer prices soared in October 2021 and are now up 6.2% from a year earlier

Cpmparing today to a time when the country was in a huge slump due to covid seems a little, I don't know, disingenuous. Maybe that's the wrong word.

Do the articles mention anything about wages being up by almost a full five percent. Certainly that would make the "high" inflation rate a little easier to take.

 

[lpetrich]

Food suppliers blame inflation for price hikes. Lawmakers say they're padding the bill.

Some companies "appear to be passing costs on to consumers" and "taking advantage of inflation to add greater burdens,” Sen. Elizabeth Warren said.

...
With inflation at its highest point in almost 40 years, American families are facing higher prices at the checkout and are making do with leaner meals. Once deemed essential, workers in grocery stores now say they feel expendable, and have been rewarded with only marginal increases in wages they say leave them unable to cover their own rising food costs.

Meanwhile, producers and grocers are exploiting the pandemic to jack up prices more than necessary to pass on increased costs to consumers, Sen. Elizabeth Warren, D-Mass., blasted in a new letter sent to the heads of Kroger, Albertson's, and Publix and shared exclusively with NBC News.

“Your company, and the other major grocers who reaped the benefits of a turbulent 2020, appear to be passing costs on to consumers to preserve your pandemic gains, and even taking advantage of inflation to add greater burdens,” Warren wrote.

...
But instead of reinvesting record profits to raise wages and improve working conditions, these companies initiated stock buybacks and boosted executive compensation, the letter noted.

...
“Your companies had a choice: They could have retained lower prices for consumers and properly protected and compensated their workers, or granted massive payouts to top executives and investors,” Warren wrote to the grocery chains heads. “It is disappointing that you chose not to put your customers and workers first.”

The stores did not immediately respond to an NBC News request for comment.“Your companies had a choice: They could have retained lower prices for consumers and properly protected and compensated their workers, or granted massive payouts to top executives and investors,” Warren wrote to the grocery chains heads. “It is disappointing that you chose not to put your customers and workers first.”

The stores did not immediately respond to an NBC News request for comment.

...
“The real culprits behind rising prices at the checkout line are extractive private actors who have created knife-edge supply chains ill-equipped to handle fluctuations in demand,” said Rakeen Mabud, managing director of policy and chief economist at Groundwork Collaborative, a Washington, D.C.-based progressive think tank. The group has been advocating for policymakers to make use of their tools to intervene, such as enforcement actions, taxation, competitive investments, increasing labor rights, and flexing anti-trust laws to bring prices down.

The argument goes that if there were more robust competition, then any retailer who tried to raise prices in excess of costs would lose business to cheaper rivals.

 

[Loren Pechtel]

What she's missing is that a company that uses a windfall for higher wages or lower prices is setting itself up for failure--the windfall won't continue, it should not be used for things which will have ongoing costs.

 

[RVonse]

What she's missing is that a company that uses a windfall for higher wages or lower prices is setting itself up for failure--the windfall won't continue, it should not be used for things which will have ongoing costs.

They can give a healthy bonus to the workers like US Steel did. And so the firm is not obligated to pay anything unless they have profits in the first place with which to pay a non recurring bonus.:

Region steelworkers to get bonuses of as much as $16,500

"It's going to help a lot with Christmas shopping. It means a lot to their families, which have made a lot of sacrifices over the years."

www.nwitimes.com

And really, the main reason these grocers did not pay their workers like US Steel did is only because they are not represented by the USW like the steelworkers are.....

I'm not a big Elizabeth Warren fan but she is absolutely right in the OP about increasing labor rights and competition. And the sooner that is done will be the better for whats left of the middle class.

 

[TV and credit cards]

The article seems to be implying that when inflation does kick in, players in the supply chain take advantage by adding a little extra for themselves, knowing they can hide behind “inflation”. Wow. Sounds like something that’s been going on since the dawn of greed. I think I sniffed this out when I was a teen in the seventies. Thank you Senator Warren for bringing to light something that has been know of and should have been fixed centuries ago.

Further, (and I’m going out on a limb here) industry consolidation can actually result in price fixing without collusion. That is, more than just “a little extra”, a lot extra now.
Monopolistic actions without the monopoly.

And. And, I’ll betcha the industry actually gets their people into positions within the regulating government agencies to gum up and slow down any investigations into their shenanigans.

Okay, that last one is really out there.

 

[Swammerdami]

The recent announcement from the Bureau of Labor Statistics shows a 6.8% year-over-year increase in the CPI. This is the highest increase since 1982.

The big question is: What will the inflation rate be next year? Or the year after that? Nobody knows. But I don't think anyone is predicting a return to inflation of nearly zero, or even about 2% for that matter.

The Federal Reserve has changed its forecasts and now think there's a good chance the interest rate on overnight risk-free money will be pushed all the way up to 3% or even 3.5% by the end of 2024. The horror, the horror! Three percent interest!

Contrast this with 1984. When inflation stubbornly remained above 4%, the Fed pushed the FedFunds rate all the way to 11.3%. That's "Eleven" with an "E."

Perhaps giants walked the Earth back in 1984. Eleven point three percent! Talk about just three percent today and politicians groan. If Trump were still in charge, he'd be firing any Fed Governor talking about 3%.

If anyone has extra change rattling in their pockets, put it into real estate, gold, silver, or something more exotic. Maybe even stocks. Cash or bonds? Get out before it's too late.

 

[lpetrich]

It looks like inflation is here | Internet Infidels Discussion Board - May 20, 2021
What’s Causing the Weird Inflation? | Internet Infidels Discussion Board - Nov 3, 2021
Opinion: The experts are finally grasping the real reason for inflation. Now, it’s time to act. | Internet Infidels Discussion Board - Jan 13, 2022

Dan Price on Twitter: "Starbucks: "we are forced to raise prices due to inflation and supply-chain issues"

Also Starbucks: "our profit just went up 31% and we gave our CEO a 39% raise to $20.4 million"

Companies are doing a great job rebranding corporate greed as "inflation" (link)" / Twitter
noting
Starbucks Raising Prices as Inflation and Labor Costs Bite - The New York Times - "The company’s profit soared 31 percent, to $816 million, in the last three months of 2021."

Dan Price on Twitter: "@JonnisTwoCents they are just one of hundreds of examples. Across the nation, corporate profits are at the highest point in 70 years." / Twitter

Corey Ford for Direct Action on Twitter: "@DanPriceSeattle @JonnisTwoCents If I recall correctly, we surpassed the Gilded Age for wealth and income inequality some time early last year." / Twitter
Making "Gilded Age II" a very appropriate name for our era.

Mz. M on Twitter: "@DanPriceSeattle @JonnisTwoCents They do this every time wages are increased. The average worker will never get on top because, GREED. There needs to be a mandate that prices cannot increase for a certain period after wages are raised, to allow the lower income earners a chance to rise above poverty. But,..no.." / Twitter

 

[Canard DuJour]

To prevent inflation after World War II, America’s leading economists recommended strategic price controls. Is there a case for doing so today, too?

Inflation is near a 40-year high. Central banks around the world just promised to intervene. However, a critical factor that is driving up prices remains largely overlooked: an explosion in profits. In 2021, US non-financial profit margins have reached levels not seen since the aftermath of the second world war. This is no coincidence. The end of the war required a sudden restructuring of production which created bottlenecks similar to those caused by the pandemic. Then and now large corporations with market power have used supply problems as an opportunity to increase prices and scoop windfall profits. The Federal Reserve has taken a hawkish turn this month. But cutting monetary stimulus will not fix supply chains. What we need instead is a serious conversation about strategic price controls – just like after the war.

article continues : https://www.theguardian.com/busines...ec/29/inflation-price-controls-time-we-use-it

 

[Swammerdami]

Rather than intrusive interventions like price controls, a straightforward way to mitigate profiteering is to tax it.

In the 1960's and 70's, the federal corporate tax rate averaged about 50%. This was cut to about 35% at the end of the Reagan Administration, and then plunged to 21% under the stewardship of D.J. Trump, Sean Hannity, QAnon and Charles Koch.

Corporate profits for 2022 will be in the ballpark of $3,000,000,000,000.00. If these profits were still taxed at the rate that Presidents like Dwight David Eisenhower and Richard Milhous Nixon found to be about right, this would mean that an extra One Trillion Dollars annually could be spent by the government for the benefit of ordinary American humans, rather than just for the billionaires and multimillionaires. Yes, that's Trillion with a T.

~ ~ ~ ~ ~ ~ ~ ~ ~

Why are corporations able to charge prices much higher than market theory would suggest? Why don't competitors arise to undercut egregious pricing? One reason is that America capitalism simply does not adhere to a free market model. The people who own and control Pepsi are essentially the very same people who own and control Coke. The owners of Pfizer and the owners of Merck are, again, essentially identical. America is owned and operated by an oligarchy.

 

[Canard DuJour]

I don't disagree but that won't necessarily mitigate price hikes in major supply shocks. The priority is to ensure that everyone can afford essentials rather than to punish profiteers. You might threaten to tax away profits above some price threshhold, but that is a form of price control and rather less "straightforward" than a cap.

 

[TV and credit cards]

What we are witnessing is the government stepping aside and the markets doing their magic.
Well I’m amazed. Are you amazed?

 

[Swammerdami]

I don't disagree but that won't necessarily mitigate price hikes in major supply shocks. The priority is to ensure that everyone can afford essentials rather than to punish profiteers. You might threaten to tax away profits above some price threshhold, but that is a form of price control and rather less "straightforward" than a cap.

But I was NOT proposing to define and tax "profiteering." I was speaking of a (hypothetical) hike to ordinary corporate income tax. And the moneys raised from the taxes could mitigate inequality (and inflation-eroded wages) via something like Andrew Yang's Basic Income (though I have better alternatives to that!) .

But I offer no panacea or silver bullet (and a sudden tax hike now would probably be disastrous). Modern capitalism is traveling on a bad trajectory and there is no simple fix.

On the topic of recent inflation, I am utterly baffled, both by the trends and by possible solutions. As I said before, I think the Fed will try — and fail — to steer a careful course between Scylla and Charybdis. (Recall the "Carter stagflation" when the economy endured several years of high inflation and/or very high interest rates. If that recurs in the present political clime, expect insurrection.)

 

[lpetrich]

Corporate Profits Drive 60% of Inflation Increases - "Higher prices aren't just a result of supply chain chaos or government spending. Inflation is being driven by the pricing power and higher profits of corporations, costing $2,126 per American."

The hottest topic in political economy right now is inflation, because inflation in the price of consumer goods and services, as well as financial assets, is determining who has access to resources. Cost increases are now running at 6.8% annually, and since wages are only growing at between 3-4%, that means real wages are going down for most Americans. Financial assets are rising even faster, and that’s also a problem. Housing prices are up by roughly 20% on an annualized basis, meaning that it’s harder to afford a house.

So ordinary people aren't being paid too much, something that some people seem to believe.

A few days by ago, prominent pundit Larry Summers did an interesting twitter thread on the problem. Summers has significant credibility on the matter, because last year he was suggesting that inflation would kick up, and sure enough, it did. Summers isn’t the only one who got this call right; in February of 2020, I wrote we’d see shortages, before the pandemic became evident, which is something the White House picked up, and there are plenty of people like former Fed Governor Tom Hoenig, who have warned of asset bubbles for a decade. But whereas I was early in warning of serious problems, and Hoenig made broader claims for a decade, Summers was specific and accurate. Summers has gotten a lot wrong in his career, but he nailed this prediction.

But there are dueling theses at work as to why inflation has risen. My belief at the start of the pandemic was concentrated market power and thin supply chains would induce shortages, and that indeed happened. One remedy for that, though not the only one, are antitrust rules that prohibit price-fixing, price discrimination, and monopolization, which often cause higher prices. (Other remedies include re-regulating shipping, which Congress is doing.) Summers, however, doesn’t see the problem in terms of market power. His view of inflation is that government spending is driving price hikes by giving Americans too much purchasing power. He is so hostile, in fact, that he has pronounced the idea of market power as a causal factor a form of ‘science denial.’

Matt Stoller then does some calculations, and he finds

Taking all of this together, it means that increased profits from corporate America comprise 44.7% of the inflationary increase in costs. That means corporate profits alone are absorbing a 3% inflation rate on all goods and services in America (44.7% of 6.8% annual inflation), with all other factors causing the remaining 3.8%, for a total inflation rate of 6.8%. In other words, had corporate America kept the same average annual level of profits in 2021 as it did from 2012-2019 and passed on today’s excess to consumers, the inflation rate would be 3.8%, not 6.8%. And that’s a big difference, indeed it is the difference between Americans getting a raise, and seeing real wages decline. (It also could explain why inflation is lower in Europe - corporate profits there were very good in 2021, but not as good as in the U.S. And in Japan both inflation and corporate profits were low.)

It gets worse, because this calculation assumes that all 6.8% of the inflationary increase in prices is new. But of course, inflation isn’t zero in normal years, the Fed has an inflation target of 2%. In 2019, inflation hit 1.8%. So if you take the pre-existing inflation rate in 2019 of 1.8% and back that out of the numbers, then it turns out that 60% of the increase in inflation is going to corporate profits.

3% to corporate profits + 1.8% preexisting inflation + 2% from government spending/supply shocks = 6.8% total inflation rate

That's where his number came from. Then the issue of why that is happening.

One interesting set of data comes from Digital.com, a survey research firm that went out and asked retail businesses about inflation. 56% of retailers told Digital.com that “inflation has given them the ability to raise prices beyond what’s required to offset higher costs.” And these price hikes are concentrated among big retailers, with 63% of large firms using inflation to more than offset costs vs 52% of small and medium size businesses. And of “those who have increased prices, 28% of large enterprises increased prices 50% or more, compared to 6% of small and medium size enterprises.” So size, and presumably market power, matters. And one person’s profits are another person’s costs, because firms buy and sell to each other. So when firms raise prices to increase profits, then this increases costs for those who buy from those firms, and accelerates the expectation of more inflation elsewhere. Profits, in other words, are also driving inflation.

 

[lpetrich]

What to do about it?

The policy solutions to address this problem look very different, depending on what you believe. Summers thinks austerity is the way to get at inflation, which is why he has been pushing to restart student loan payments, as taking money from young people means they won’t spend it on goods and services. He also wants to eliminate tariffs and Buy America provisions so that there are more cheap imports from China.

Would these solutions work? Well, certainly austerity will reduce inflation, as will a recession, though at a very high cost. Inducing more imports, I suspect, won’t work. I’ve interviewed a few business people dealing with China tariffs; they told me they raised prices when the tariffs hit, but won’t lower them if the tariffs go away. That’s because prices aren’t based on cost, but market power. Lower tariffs on Chinese imports will simply flow to more profits for middlemen, not lower prices for consumers.

If it’s true that a concentrated economy is allowing firms to exploit the current pricing environment to raise margins, then a different set of policy solutions should flow from that.

The first is to strengthen laws against price-fixing. ...

The second is to impose an excess profits tax. ...

The third is to strengthen the antitrust laws against monopolistic conduct and concentration in general, which is likely driving some part of inflation. ...

Finally, since large firms raise prices more than small firms, then a revival of provisions against price discrimination would likely reduce consumer prices. ...

How much will these changes help? It’s hard to say. The potential is quite real. In 1939, Franklin Delano Roosevelt’s Antitrust Division was so feared that merely announcing an antitrust investigation would cause prices in a market to fall by 18-33%.

Larry Summers's solutions would hurt those who are most vulnerable, those whose standard of living is falling behind because of inflation.

 

[Canard DuJour]

I don't disagree but that won't necessarily mitigate price hikes in major supply shocks. The priority is to ensure that everyone can afford essentials rather than to punish profiteers. You might threaten to tax away profits above some price threshhold, but that is a form of price control and rather less "straightforward" than a cap.

But I was NOT proposing to define and tax "profiteering." I was speaking of a (hypothetical) hike to ordinary corporate income tax. And the moneys raised from the taxes could mitigate inequality (and inflation-eroded wages) via something like Andrew Yang's Basic Income (though I have better alternatives to that!) .

Then I think the comment to which you ostensibly reply stands in response.

But I offer no panacea or silver bullet (and a sudden tax hike now would probably be disastrous). Modern capitalism is traveling on a bad trajectory and there is no simple fix.


On the topic of recent inflation, I am utterly baffled, both by the trends and by possible solutions. As I said before, I think the Fed will try — and fail — to steer a careful course between Scylla and Charybdis. (Recall the "Carter stagflation" when the economy endured several years of high inflation and/or very high interest rates. If that recurs in the present political clime, expect insurrection.)

If Matt Stoller (quoted by L.Petrich above) is right (and I think he is), there isn't much the Fed can do, other than harm by raising rates. It's time for the federal govt to flex its legislative and fiscal muscles.

 

[Harry Bosch]

I don't disagree but that won't necessarily mitigate price hikes in major supply shocks. The priority is to ensure that everyone can afford essentials rather than to punish profiteers. You might threaten to tax away profits above some price threshhold, but that is a form of price control and rather less "straightforward" than a cap.

But I was NOT proposing to define and tax "profiteering." I was speaking of a (hypothetical) hike to ordinary corporate income tax. And the moneys raised from the taxes could mitigate inequality (and inflation-eroded wages) via something like Andrew Yang's Basic Income (though I have better alternatives to that!) .

Then I think the comment to which you ostensibly reply stands in response.

But I offer no panacea or silver bullet (and a sudden tax hike now would probably be disastrous). Modern capitalism is traveling on a bad trajectory and there is no simple fix.


On the topic of recent inflation, I am utterly baffled, both by the trends and by possible solutions. As I said before, I think the Fed will try — and fail — to steer a careful course between Scylla and Charybdis. (Recall the "Carter stagflation" when the economy endured several years of high inflation and/or very high interest rates. If that recurs in the present political clime, expect insurrection.)

If Matt Stoller (quoted by L.Petrich above) is right (and I think he is), there isn't much the Fed can do, other than harm by raising rates. It's time for the federal govt to flex its legislative and fiscal muscles.

Well, the supply chain is starting to fix itself. Raising interest rates would reduce money supply. This has debated many times on this forum. But another reason to raise interest rates in good times is so that if bad times come again (and they will); the government will have additional tools to stimulate the economy.

 

[Canard DuJour]

I don't disagree but that won't necessarily mitigate price hikes in major supply shocks. The priority is to ensure that everyone can afford essentials rather than to punish profiteers. You might threaten to tax away profits above some price threshhold, but that is a form of price control and rather less "straightforward" than a cap.

But I was NOT proposing to define and tax "profiteering." I was speaking of a (hypothetical) hike to ordinary corporate income tax. And the moneys raised from the taxes could mitigate inequality (and inflation-eroded wages) via something like Andrew Yang's Basic Income (though I have better alternatives to that!) .

Then I think the comment to which you ostensibly reply stands in response.

But I offer no panacea or silver bullet (and a sudden tax hike now would probably be disastrous). Modern capitalism is traveling on a bad trajectory and there is no simple fix.


On the topic of recent inflation, I am utterly baffled, both by the trends and by possible solutions. As I said before, I think the Fed will try — and fail — to steer a careful course between Scylla and Charybdis. (Recall the "Carter stagflation" when the economy endured several years of high inflation and/or very high interest rates. If that recurs in the present political clime, expect insurrection.)

If Matt Stoller (quoted by L.Petrich above) is right (and I think he is), there isn't much the Fed can do, other than harm by raising rates. It's time for the federal govt to flex its legislative and fiscal muscles.

Well, the supply chain is starting to fix itself.

Yes and we don't want price hikes baked in

Raising interest rates would reduce money supply.

Which won't help if the above is right.

This has debated many times on this forum. But another reason to raise interest rates in good times is so that if bad times come again (and they will); the government will have additional tools to stimulate the economy.

Well these are hardly 'good times' and that argument applies to the central bank. Even at ZLB, govt has additional tools to stimulate the economy which central banks were urging govts to use some time before the pandemic. Lowering interest rates in bad times is mostly pushing on a string anyway.

(..not that central banks aren't part of govt)

 

[lpetrich]

Qasim Rashid, Esq. on Twitter: "
Chipotle: 26% profit increase. Raising prices.
Starbucks: 31% profit increase. Raising prices.
McDonalds: 59% profit increase. Raising prices.
Shell/Mobile/BP: 60% profit increase. Raising prices.
There's not a labor shortage.
This isn't inflation.
It is 100% corporate greed." / Twitter
But it creates inflation.