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Comment by josu | Hacker News Reader

Do not buy into that narrative. This inflationary process has been mostly driven by monetary policy. Margin increases are the result of businesses trying to navigate an inflationary period. These margin increases are not resulting in increased profits across the board (there are some notable exceptions). For example, Carrefour's profits in 2022 were about the same as in 2019. [1]

From the article you linked: "Profits (adjusted for inflation) were about 1 percent above their pre-pandemic level in the first quarter of this year."

[1] https://finance.yahoo.com/quote/CA.PA/financials?p=CA.PA

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Without a doubt monetary policy has fueled inflation, but do not ignore the policies of allowing corporate mergers for the last 40 years. Lack of competition reduces price elasticity, and the end game of every monopoly is to raise prices. We are living in a world of global monopsonies, and my expectation is to contine to pay this monopoly tax for years.

Worse, is it’s never been easier to collude. It used to be you had to pay a big consulting firm big money for them to tell you “current market rates” for many goods and services. Now you can just subscribe to same SaaS everyone in your industry uses and have it tell you how much to charge. This tends to help break out of a prisoner’s dilemma.

This was something I never quite anticipated. I used the intenet when it was young to help do price discovery and find better deals. Never occurred to me the end game was for companies to do it even better for pricing. Even after seeing thrift store pricing adjust due to seeing online prices on ebay, it didn’t occur to me the scale it would happen elsewhere.

There are 20 different burger restaurants within 10 miles of me. Some are chains, some are local. Some use major beef suppliers, some use local organic ones. All of their prices have gone way up.

There is no collusion here and this has jack shit to do with mergers. If those were the causes, inflation would have been a crisis 10 years ago.

The only collusion is the default one: profit at all costs.

Everyone raises prices to increase profits, increasing inflation, that increases prices further...

I don't understand why people are so happy to blame governments and treat companies, in which profit is their raison d'être, as if they're only "reacting to the government".

Of course both are to blame, but let's stop pretending companies are victims while record profits are seen everywhere (adjusted to inflation). Many (if not most) are clearly taking advantage of this exact sentiment against the government to pocket even more profit. It's not me, it's the inflation!

If this is true, why are inflationary periods relatively rare?

Rare for whom? At any point in time this is happening in many countries around the world.

I don't see how the frequency changes my assertion though. That's the regular boom/bust cycle from capitalism. There are many theories on why that happens but the fact is: they happen.

Well were it even a cycle. It's an even increasing oscillation until it explodes and corrective action is taken.

I hope this time it will be corrected... permanently.

How many of these burger joints own the building they operate in?

This is a very shallow look at economic forces. And ignores some of the bigger squeezes happening. The number of landlords continues to decline as real estate is consolidated in fewer hands. And worse, the number of landlords that abdicate their roles to real estate management companies grows every year, and the percentage of properties in an area run by a given management company continues to grow as well. This creates a level of “collusion” that didn’t really exist 30 years ago.

Our current market abhors competition, and regulators and courts have increasingly sided with the bigger business.

Inflation was a huge problem 10 years ago. It’s why I stopped renting.

>How many of these burger joints own the building they operate in?

Roughly half. Nearly all of the locally owned ones.

>Inflation was a huge problem 10 years ago. It’s why I stopped renting.

No it wasn’t. At least not by any quantitative measures.

Rental prices and estate prices have been rising since at least 2010. So much longer than 10 years, but the prices have not risen commensurate to this with a multiplier like they did lately.

So, the inflation story is most certainly a lie. The businesses started to charge more because they had an excuse in (a minor) supply shock and fuel price rises. But it's just that, an excuse. Worst case pure inflation is about 10% while the increases are... a lot. Especially in some sectors.

The situation is "so bad" for some corporations they're instituting stock buybacks. :) So stockholders are getting rich.

You’re bending over backwards to make your narrative fit. These burger restaurants are a blend of major national chains and completely local ones. The local ones absolutely are not “instituting buybacks”.

This is not some corporate conspiracy. The fed’s comments on inflation have made it very clear there is a labor shortage in the services sector that is driving up costs there quickly.

Starting hourly rates at these restaurants are now $20/hr, up from $15 a couple of years ago, and that’s still not enough. Each one of them has hiring signs and is clearly short staffed.

Commercial leases are for like 5-10 years. Why do you think they all simultaneously renegotiated higher rent in 2022?

Thanks for the collusion/dilemma tip, I didn't know.

> Do not buy into that narrative. ... Carrefour's profits in 2022 were about the same as in 2019.

Isn't this exactly why we should buy into this narrative? The manufacturers increased their margins, so Carrefour sells more expensive, but in the end gets the same total profit.

The parent is saying that these "increase in margins" are companies trying to get ahead of inflation. The media narrative has been to blame the corporations, despite the real issue being the economy. There are elections to worry about, so we can't have that.

Smart businesses don't wait until they start losing money to make adjustments. They plan ahead. These "margin increases" are literally increases due to inflation which will companies expect to take hold over the next 1-2 years. There could be a variety of factors for this. One such example is corporate bonds rolling over to new interest rates which are expected to start happening en masse very soon.

>The media narrative has been to blame the corporations, despite the real issue being the economy.

This might be a really, really stupid question, but aren't corporate decisions sort of the economy?

Manufacturers trying to get ahead of inflation and ending up with record profits. How convenient.

I'll buy the media narrative this time, thank you.

They are only record profits when you don’t adjust for inflation. Companies in Zimbabwe were making record profits every year, what a booming economy!!!

The research paper linked by the parent comment is using Gross Operating Surplus and EBITDA metrics: Gross operating surplus differs from profits shown in company accounts for several reasons. Only a subset of total costs are subtracted from gross output to calculate the gross operating surplus. Essentially it is gross output less the cost of intermediate goods and services to give gross value added, and less compensation of employees and taxes and subsidies on production and imports.

There are obvious financial cost increases that have happened which are falsely represented as 'profit' in this analysis.

Here in Australia we seem to be having high inflation of food, which the main supermarkets (a duopoly) are blaming on the cost of goods.

Meanwhile, they've both reported their highest ever company profits. :(

So, clearly they're full of shit about the cost of goods being the cause rather than their own price gouging.

Record profits in a period of inflation is not surprising.

If the value of the Australian dollar halves, then a company doubling it's raw profit figures is really just staying maintaining the same profits in real value.

If the value of the Australian dollar halves, and a company manages to double its raw profit figures... doesn't that still sound like price gouging?

Why would their "maintaining the same profits in real value" be acceptable when no-one else in the end to end chain (producers, customers, etc) managed to in the situation.

What is price gouging?

It's not price gouging: the value of currencies are almost certainly never going to return to their pre-pandemic levels. Price gouging typically refers to raising prices in a specific exceptional situation like a disaster. Inflation is not exceptional, it's happening worldwide (though more in some countries than others). It's also not a temporary. It's lasted years and even if inflation returns to 2% the prices are going to stay high.

Again, if the value of currency halves and profits in raw curry terms doubles then profit in terms of real value has remained the same. If a company pays it's employees $30 and the value of currency halves, and it raises wages to $45 did they really raise wages? In raw terms, yes, but in real terms no. The value of wages has actually gone down.

Record profits as a percentage of revenue.

The problem in Austrialia is a lack of competition, hence Woolworths can get a 5.9% profit compared with say Tesco in the UK with 3.8% profit (the UK having far more competition)

Not only that but while demand is decreasing, profits are increasing. That's a ridiculous system and shows a broken market.

Plenty of competitors have prepared to enter Australia, and then left after finding there is no money to be made.

Too few people spread too far apart.

> Plenty of competitors have prepared to enter Australia, and then left after finding there is no money to be made.

Explain ALDI?

it sounds a lot like there is plenty of money to be made from the figures parent is stating. Maybe it ought to be prased more like "unique logistical challenges" because clearly some few companies have made it work very well

Prices are rising because inflation because pricing are rising because inflation

Smart.

Except that really is what happens. If the prices of your inputs increase, then you have to raise the prices of your goods. And then companies that use your goods isn't puts have to raise their prices, and so on.

In terms of labor and wages, it's called a wage price spiral: https://en.m.wikipedia.org/wiki/Wage-price_spiral

Similar dynamics exist for physical goods.

I'll just quote myself.

>Do not buy into that narrative.

Would you mind sharing the data? I've done a quick search, but I can't confirm what you said.

I found this, which contradicts what you said, but Statista is not super reliable: https://www.statista.com/statistics/1116200/australia-net-pr...

But even if it's true, and they recorded the largest profits, the catalyst still is the monetary policy. If businesses could just price gauge their clients, they would have already done it before. The goal of a corporation has always been to maximize utility, and this hasn't suddenly changed; so ask yourself, why are they raising prices now.

> But even if it's true, and they recorded the largest profits, the catalyst still is the monetary policy. If businesses could just price gauge their clients, they would have already done it before.

You can't think of any major global event that happened since 2020 that may work as a "distraction" and a cover while businesses engage in monopolistic/anti-competitive behavior?

Sorry but branded products particularly from big brands like Unilever have become crazily expensive. The branded product is sometimes up to 5 times more expensive than the store brand for the same product. To me the most crazy product that was too expensive was some water ice, which is literally water, sugar, and some flavoring/coloring.

Sure there is inflation, but maybe those companies keep sending excel files to each-others department and keep increasing prices multiple times more than needed.

That "narrative" is coming from food corporations bragging in their quarterly earnings calls that they're not lowering prices even as fuel, labor, and material prices fall coming off the pandemic, because they've gotten people used to the higher prices.

Canadian retailer profits have been off the charts, fwiw. Inflation has been quite brutal and merciless in Canada, with retail chain owners fat extra paychecks in the tens or hundreds of millions.

I am amazed to finally see a comment like yours, I've argued this point in various contexts and I was treated like I am crazy.

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