this post was submitted on 03 Aug 2023

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Did company profits fuel inflation? Bank of Canada researchers say no - National | Globalnews.ca (lemmy.ca)

submitted 1 year ago by Hacksaw@lemmy.ca to c/canada@lemmy.ca

7 comments fedilink hide all child comments

The laughable Bank of Canada report even includes the line

Why did this increase in markups not contribute significantly to inflation? We show that markup growth reached its highest level because of a contraction in firms’ costs [...] during the pandemic-related public health interventions

So when their costs go down they keep the prices the same and pocket the difference, BoC report verdict "profit growth without inflation". So what happens when costs go back up?

We observe a mild contribution of markup growth to inflation in 2021, partially explained by demand rebounding faster than costs. However, the fact that markup growth fell to zero the following year indicates that firms were likely smoothing out their price increases [...] rather than leveraging increases in market power.

So when the costs go back up, they pass 100% of the cost to the consumer and keep their new higher profit margins (no change in markup). BoC verdict "the inflation has nothing to do with profit growth". Amazing!

If industry follows this "price ratchet" mechanism profit margins can go to infinity "without causing inflation" according to BoC. Absolutely galaxy brain levels of economic genius.

They really think we're idiots.

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[–] ChocoboRocket@lemmy.world 22 points 1 year ago* (last edited 1 year ago) (1 children)

While I haven't read the full report, I've never seen an assessment review the entire supply chain that is usually vertically integrated.

"costs go up" isn't some event that happens only because of drought/war/etc. It's true that resources are not always equally available, and prices can reflect this.

But when a supply chain is nearly entirely vertically integrated within 3 monopolies (oligopoly), there are plenty of costs that can be raised just because.

If there are 5 steps in the supply chain from farm to shelf, and the farm costs go up, every step in the supply chain can raise costs. If someone owns the entire supply chain, there are now 5 opportunities for someone to pay themselves, funded by the end consumer retail price.

It's painfully obvious that the lack of competition is encouraging unmitigated greed. They're using half assed myopic "studies" to suggest record profits aren't because of Greed since the last stage of the supply chain isn't exclusively where the gouging happens as if it's the only place profits can occur.

[–] Hacksaw@lemmy.ca 7 points 1 year ago

Yup, it's super easy to blame the costs and shrug when you're the one that controls most of the costs. Vertical integration is how companies create monopolies without running afoul of monopoly laws. Regulations need to catch up to modern behavior.

[–] Jaysyn@kbin.social 13 points 1 year ago

This report is an insult to your intelligence, Canucks.

[–] t0fr@lemmy.ca 5 points 1 year ago* (last edited 1 year ago)

https://c.tenor.com/Z21orJsHOGoAAAAC/tenor.gif

[–] Cruxifux@lemmy.world 4 points 1 year ago

Banks in Canada are a monopoly, or close to it when the top shareholders of each bank is the other banks.

What did you THINK they were gonna say? Man this country is so broken and zero candidates want to fix the things I take issue with.

[+] Dearche@lemmy.ca -7 points 1 year ago (1 children)

I think it's ridiculous that the presumption that prices have stabilized means that costs have fallen and the companies are pocketing the difference. They probably are pocketing the difference, but there's no evidence to say that it's actually a significant amount. This author suggests that the companies' costs have probably plummeted by a good 20-50% or something and isn't passing that along when their costs probably only dropped by like 5%, an amount that virtually nobody would notice if the end prices have actually fallen.

I've noticed that several beers have fallen in price these last few months(hell, some have dropped in the last two years), yet nobody has ever mentioned it once. I know a guy who works with beer, and he told me that he hasn't noticed any changes in spending habits regarding the changes in prices going down. Only when the prices go up do people notice.

There are definitely issues in the supply chain caused by a lack of competition, but this isn't remotely a new thing, nor is recent phenomena evidence that the prices is especially worse now than it was ten years ago. Blaming the BoC for doing their job isn't the solution, but actually identifying specific issues and proposing workable changes is how to make things better, not having a tantrum like a man-baby.

[–] Hacksaw@lemmy.ca 5 points 1 year ago

That's not what I said. That's also not what the report said. You're arguing with yourself at this point.

The report says at the beginning of covid costs dropped, but prices didn't, with the difference going to profits. Then when costs went back up prices went up maintaining the existing profit margins. That's a "price ratchet" and you can easily figure out what happens after a few cycles. Somehow the bank of Canada concluded this isn't a factor in inflation because they looked at both parts of the price ratchet separately instead of together.