Inflation

[Puppycow]

China's zero covid approach is having supply chain effects in Japan:

Toyota to halt 12 plants in Japan due to Shanghai COVID lockdown

Toyota Motor Corp. plans to pause production at more of its plants in Japan as it struggles to procure parts from China because of the prolonged COVID-19 lockdown in Shanghai.

. . .

China's zero-tolerance COVID-19 policy has hurt companies operating there. Toyota's Tianjin plant temporarily suspended its operations in January. Its Changchun plant was also forced to close for about a month and a half from mid-March.

The strict COVID-19 lockdown in Shanghai is affecting other major auto companies as well.

 

[Puppycow]

Even Japan is fighting inflation now

By US standards, Japan’s inflation rate in May might feel paltry. Year on year, the consumer price index rose 2.5%, compared to a heated 8.6% in the US that same month.

Luckily, not too huge a problem here, but the yen is quite weak right now.

Strong support validates Kishida's world-defying inflation policy ahead of vote

As politicians around the globe rush to tamp down inflation, Prime Minister Fumio Kishida is betting instead that older voters in particular will look past surging prices in a crucial election on Sunday.

Kishida has endorsed the Bank of Japan’s unorthodox stance of keeping borrowing costs at rock-bottom levels even as inflation heats up, and the yen has slid to a 24-year low. During the campaign for the Upper House election, Kishida has made the case that higher interest rates would hurt mom-and-pop shops and homeowners even more.

There's also some talk about the election tomorrow, but you'll have to follow the link if you want to read about that. Basically, it looks like good news for the LDP.

The BoJ is for now maintaining low interest rates and continuing to buy up JGBs. The yen is getting weaker, but that should help Japanese exports, so I think the net effect is probably OK for the economy. We'll see. Depends how long this war in Ukraine lasts.

 

[The Great Zaganza]

if this was a real inflation, company profit margins wouldn't be so high.
This is a case of price gouging.

 

[gnome]

if this was a real inflation, company profit margins wouldn't be so high.
This is a case of price gouging.

Keynes once spoke on that. He believed that profiteering was an easy target for public outrage, but that it was more a consequence of inflation than a cause. Could he have a point?

 

[Roger Ramjets]

if this was a real inflation, company profit margins wouldn't be so high.
This is a case of price gouging.

United States Corporate Profits

Corporate profits in the United States fell 4.9 percent to USD 2.40 trillion in the first quarter of 2022, following a 0.2 percent gain in the previous period and compared with preliminary estimates of a 4.3 percent drop. Net cash flow with inventory valuation adjustment, the internal funds available to corporations for investment, fell 2.2 percent to USD 3.16 trillion, while net dividends rose 0.8 percent to USD 1.48 trillion. Meanwhile, undistributed profits slumped 12.8 percent to USD 0.93 trillion...

Corporate Profits in the United States is expected to be 2400.00 USD Billion by the end of this quarter, according to Trading Economics global macro models and analysts expectations. In the long-term, the United States Corporate Profits is projected to trend around 2070.00 USD Billion in 2023, according to our econometric models.

Does that make you feel better?

For reference: in 2019 it was ~2.1 trillion, while the peak in late 2021 was ~2.5 trillion. Not a huge difference, especially when looking at profit margins:-

The General Public Thinks the Average Company Makes a 36% Profit Margin, Which Is About 5X Too High

When a random sample of American adults were asked the question “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” for the Reason-Rupe poll in May 2013, the average response was 36%...

How do the public’s estimates of corporate profit margins compare to reality? Not surprisingly they are off by a huge margin. According to this NYU Stern database for more than 7,000 US companies (updated in January 2018) in many different industries, the average profit margin is 7.9% for all companies and 6.9% for more than 6,000 companies excluding financials... more than 72% of industry profit margins were single-digits and the median industry profit margin is 6%....

For the general retail sector, the average profit margin is only 2.3% and for the grocery and food retail industry, it’s even lower at only 1.6%...

Interestingly, for nearly 100 industries analyzed by NYU Stern, there’s only one industry that had a profit margin as high as 36%... tobacco at 43.3%.

So if you don't want to be 'price gouged', give up smoking. But most of the stuff you buy is already about as cheap as it can realistically be.

 

[Puppycow]

The profit margin on tobacco products is probably dwarfed by tax component in the retail price though.

ETA: I also wonder whether that profit margin also accounts for the costs of the Tobacco Master Settlement Agreement?

https://en.wikipedia.org/wiki/Tobacco_Master_Settlement_Agreement

The states settled their Medicaid lawsuits against the tobacco industry for recovery of their tobacco-related health-care costs.[1]: 25  In exchange, the companies agreed to curtail or cease certain tobacco marketing practices, as well as to pay, in perpetuity, various annual payments to the states to compensate them for some of the medical costs of caring for persons with smoking-related illnesses. The money also funds a new anti-smoking advocacy group, called the Truth Initiative, that is responsible for such campaigns as Truth and maintains a public archive of documents resulting from the cases.

The settlement also dissolved the tobacco industry groups Tobacco Institute, the Center for Indoor Air Research, and the Council for Tobacco Research. In the MSA, the original participating manufacturers (OPM) agreed to pay a minimum of $206 billion over the first 25 years of the agreement.

Since this is an unusual arrangement, it's conceivable that the profit margins would be lower after you subtract these payments.

Interestingly, the original 25-year period will expire next year.

 

[The Great Zaganza]

I think the confusion comes from the assumption that I meant that all companies that have increased prices are price gouging, or that this is something that only started recently.

What I meant was that companies critical to the supply chain and energy production are price gouging, which forces companies depended on them to raise prices, too.
The shipping industry is a near monopoly, and the oil market is a cabal.

Most companies can take a hit if a few critical ones are profiteering, which makes this an inflation caused by Market Failure, not by underlying economic conditions.

 

[johny76239]

I thought I could come here and learn why do I have the same amount of money, but I can buy less, instead my head hurts.

 

[psionl0]

I thought I could come here and learn why do I have the same amount of money, but I can buy less, instead my head hurts.

Prices are higher. Now you can stop taking pain killers.

 

[Orphia Nay]

I keep seeing people blaming their country's government for high inflation.

Yet, inflation is high in most countries in the world, no matter left or right wing governments.

Is it something that can be fixed on an individual country basis?

 

[The Atheist]

Is it something that can be fixed on an individual country basis?

Technically yes, but practically, no.

The problem is wage growth caused by historically low unemployment. Without putting businesses out of business and consequent raising unemployment, it's not going to be easy to fix, particularly with the Saudi filth siding with Putin in raising oil prices.

We're going to be stuck in an ugly pattern for some time.

The sad part is, everyone knew this would happen with unlimited funds being made available at zero interest rates. It's just taken a lot longer to show up, because the inflation had been hidden thanks to house prices not being included in inflation, which has always seemed stupid to me.

 

[rjh01]

In Australia, inflation is caused mainly by businesses increasing profits. Wages have not increased in line with inflation.

 

[Startz]

Technically yes, but practically, no.
snip

The sad part is, everyone knew this would happen with unlimited funds being made available at zero interest rates. It's just taken a lot longer to show up, because the inflation had been hidden thanks to house prices not being included in inflation, which has always seemed stupid to me.

In the U.S., the imputed value of rent for house prices is included in the CPI.

https://www.bls.gov/cpi/factsheets/...rchase and improve,not consumption in the CPI.

 

[Brainster]

I keep seeing people blaming their country's government for high inflation.

Yet, inflation is high in most countries in the world, no matter left or right wing governments.

Is it something that can be fixed on an individual country basis?

While it's true that the countries in that article are experiencing inflation, the effect is far from even. Japan's inflation rate at 2.6% is quite a bit lower than the UK's at 10.1% and then you have Turkey at 79.6%. At those rates, Japan's prices would double in 27 years, the UK's would double in 7.2 years and Turkey's will triple in 2 years.

While some of the blame can be laid at the government's door, the problem (at least in the US) is which government. The inflation of the 1970s was mostly caused by Lyndon Johnson. I suspect a lot of the inflation we are experiencing today in the US is due to the spending during the recession of 2007-2009, along with the stimulus payments made by Trump and Biden in 2020 and 2021.

 

[The Atheist]

In Australia, inflation is caused mainly by businesses increasing profits. Wages have not increased in line with inflation.

Utter nonsense that a lot of lefties spout.

Profits are an insignificant part of inflation, and it's very simple to prove it - just look at the profit margins, which are 5/8 of **** all.

I have people scream at me that oil company profits are causing inflation, and it's pure garbage. The oil industry is worth $5T a year. Four of the five biggest companies made $50B in total, or 1% of the value of that market. Even if they increase profits by 50% it would have a whole 0.5% impact on prices, while the raw cost has gone up 150% in the past two years.

It's a red herring and completely wrong to blame corporate profits.

In the U.S., the imputed value of rent for house prices is included in the CPI.

It is everywhere, which is why I specified the price of houses, not rents. House prices all round the world have increased by a vast amount more than the inflation rate.

 

[The Atheist]

While it's true that the countries in that article are experiencing inflation, the effect is far from even. Japan's inflation rate at 2.6% is quite a bit lower than the UK's at 10.1% and then you have Turkey at 79.6%.

Misleading at best.

Japan's always an outlier on inflation - just look at the Lost Decades. It took them 20 years to shrink their economy by 20% as the rest of the world was booming.

I suspect a lot of the inflation we are experiencing today in the US is due to the spending during the recession of 2007-2009, along with the stimulus payments made by Trump and Biden in 2020 and 2021.

No suspicion needed, it's factual. What caught everyone out was how long it took to be a problem.

The sad part is, everyone knew this would happen with unlimited funds being made available at zero interest rates.

The whole cause of all the economic problems is "Quantitative Easing", or as I like to call it "print money flat out and hope like christ you didn't create another Weimar Republic".

I'm not convinced there's a way out right now. Inflation will only drop to a certain level because the workers have all the power right now, if only they realise it, and many seem to.

I must do some searching to see how much the service industry grew since 2008 - I bet all the people we need right now have been soaked up by it.

 

[lobosrul5]

While it's true that the countries in that article are experiencing inflation, the effect is far from even. Japan's inflation rate at 2.6% is quite a bit lower than the UK's at 10.1% and then you have Turkey at 79.6%. At those rates, Japan's prices would double in 27 years, the UK's would double in 7.2 years and Turkey's will triple in 2 years.

While some of the blame can be laid at the government's door, the problem (at least in the US) is which government. The inflation of the 1970s was mostly caused by Lyndon Johnson. I suspect a lot of the inflation we are experiencing today in the US is due to the spending during the recession of 2007-2009, along with the stimulus payments made by Trump and Biden in 2020 and 2021.

Wow... I'd really like some info on that, never ever have I heard it before. Arthur Burns is probably the person most responsible for inflation in the 70s's, along with OPEC heads of states. Double checked and he was a Nixon appointee.

 

[lobosrul5]

No suspicion needed, it's factual. What caught everyone out was how long it took to be a problem.

A theory, that I just came up with out of thing air, is that in actual reality the 2010's were highly inflationary*. Its just that a huge amount of dollars were tied up into corporate stock. Most people were just holding shares, and not spending it.

*or, one could say the huge bubble in corporate stock would almost inevitable lead to inflation. Theres also the fact that Americans now have 29trillion in home equity. About 20 times more than in the late 70's.

 

[Solitaire]

While some of the blame can be laid at the government's door, the problem
(at least in the US) is which government. The inflation of the 1970s was mostly
caused by Lyndon Johnson. I suspect a lot of the inflation we are experiencing
today in the US is due to the spending during the recession of 2007-2009,
along with the stimulus payments made by Trump and Biden in 2020 and 2021.

Apparently the spending during the 2008 recession didn't do very much,
nor does quantitative easing over the next ten years, but the spending
by the federal government in 2020 sure did.

In six years the government debt expanded by ten trillion which works out
to about half of the twenty trillion dollar economy - a clear case of rising
supply of dollars.

Slowing the extra spending or raising taxes would definitely cool the inflation.

 

[Brainster]

Wow... I'd really like some info on that, never ever have I heard it before. Arthur Burns is probably the person most responsible for inflation in the 70s's, along with OPEC heads of states. Double checked and he was a Nixon appointee.

Washington Post from 1978:

The inflation spiral that began in the mid-1960s also was war-related. Its roots were in the start of the Vietnam conflict, when President Johnson refused to raise taxes to finance both military operations and domestic social programs.

Oil was a big part of the spikes in inflation in 1974 and again in 1979, but it was much like today, when the gas prices receded, the inflation remained. If you look at the CPI, it had been fairly steady in the 1-2% range during the early 1960s, but as Johnson escalated the war in early 1965 (at the same time he was increasing domestic spending with the Great Society), it quickly ticked up to the 3-4% range by early 1967. After a brief cooling that year it shot up to 4-5%, which is where it stood when Nixon took office. It did increase a bit until peaking at 6% in early 1970, but from there it pretty steadily declined back down to 4-5% by 1971. The wage and price controls that came in 1971 did have some effect, dropping inflation down to 3% (but of course causing economic disruptions at the same time). And when they were lifted, inflation ticked right back up again, just as oil prices skyrocketed.