Inflation

[Value Hunter]

Cool, But I never claimed that was what is causing our current inflation.



Yep, that's my point




The monetary inflation side was caused by the central banks, mainly because they were avoiding major catastrophes, so they everyday consumer has probably had a much better time over the last 16 years than they would have if nothing was done to fend off the GFC and other crisis in the mean time. Some times if you have a good time you get a hangover.

The supply chain problem always requires belt tightening, but there will be other times where we get fat.




The Media always get the wrong idea, and like to sprout emotive headlines.



I don't think they are guilty, I think they did what they thought was needed keep the economy ticking and keep people in jobs, the everyday people have benefited.



Having a credible plan to prevent the next drought and install more irrigation will not have an immediate affect on the price of Avocados, or any other commodity that we consume hand to mouth like Oil, a shortage requires the consume to take action, price it the signal.

If you don't think politicians and central bankers are guilty agree to disagree. They had so many evil policies. Debating that is a whole other can of worms which could be its own 20 page thread so I am not going to go there. And also to the extent they were fending off crises they were fending off crises caused by their own policies of ultra low rates, irresponsible fiscal deficits, etc all for long periods of time which snowballed the distortions until crises occurred. We should just get rid of central banks and let markets set interest rates. Why do we need central banks (I don't buy the lender of last resort argument as there are ways around that). I think the Austrian school of economics gets a lot of this stuff right.

Sure you cannot effect the immediate price of some commodities but there are many where a meaningful impact could be had such as crude oil, gas, copper, uranium (can impact electricity prices), rare earths (can flow onto the price of batteries, etc), etc

Consumers tightening there belts can have an effect on inflation

 

[Value Hunter]

It would be interesting to know how much the farm gate price of Mangos has risen, vs all the other costs of getting them from farm gate to market.

eg. card Board boxes, fuel, electricity, insurance, wages, etc etc.

Also, Australia is a mango exporter, so we are some what tied to the world price, so just because part of Australia has a bumper crop one year, doesn’t mean the rest of the world isn’t in short supply seeing higher prices.

Also it would be interesting to see if there was any profiteering from mango producers and supermarkets etc (i.e. increasing the price well above their cost increases while using inflation as cover).

 

[Knobby22]

Also it would be interesting to see if there was any profiteering from mango producers and supermarkets etc (i.e. increasing the price well above their cost increases while using inflation as cover).

The supermarkets should be split up. They have become an oligopoly.

For capitalism to work effectively there needs to be strong competition. Australia's supermarkets are far more concentrated with regard market share than in other countries.

 

[Value Hunter]

Here is an excerpt from a Eurkea Report article talking about inflation:

"Having prepped you with Gerry Harvey, let’s take a final step into the darkness and look at the third option. You’re Alan Joyce, approaching the end of your tenure with the airline in shutdown, having received hundreds of millions from taxpayers to keep it afloat.


You can see what’s coming. People have been locked in their homes for years and have cash in the bank. Your major competitor has entered administration and inflation is everywhere. The conditions to go out with a bang are ideal. Under the guise of rising oil and input costs, you push through price increases above the average inflation rate simply because you can.


Joyce may have trashed the Qantas brand like a locust swarm through a cornfield but his brutal, destructive efficiency helped Qantas produce a record profit last financial year.


Table 1: Qantas financial performance 2019-2023

	2019	2022	2023
Total Revenue ($)	18.0bn	9.1bn	19.8bn
Underlying profit/(loss) before tax ($)	1.3bn	(1.86bn)	2.5bn
Operating margin (%)	8.3%	(17.1%)	13.5%

Source: Company accounts​

While revenue rebounded to pre-Covid levels and profitability has never been higher, the operating margin, at 13.5%, is 63% higher than in pre-Covid 2019. This measures the profit a company makes on a dollar of sales, after accounting for the direct costs incurred earning those sales.


Had Qantas done a Gerry Harvey, its operating margin would have been within its historical range. It was way above it because Joyce pushed through price increases beyond those justified by an increase in its costs.


With justification, Alan Joyce may be the bête noire of Australian business but he is not alone in his actions. In those sectors where a few companies dominate and pricing power exists, inflation has offered camouflage for price increases that have boosted profit margins.


Woolworths's latest annual report's front cover carries the line ‘We are better together’. This might be read as a message to Coles rather than staff or customers. Woolworths CEO Brad Banducci has been as adept as Alan Joyce and Coles CEO Leah Weckert in using inflation as cover to increase profit margins.

Food inflation​

Woolworths’ food sales business had revenues of $48bn in the 2023 financial year, a 5% increase on 2022. Its cost of doing business as a percentage of sales was 21.9%, up a mere 0.08% on the prior year. And yet earnings (profit) before interest and tax rose 19%. So, revenue went up a bit, costs went up even less and profits went through the roof.


Coles and Woolies attribute the sudden and astronomical margin increases to productivity improvements and cost efficiencies. Unless Banducci got his forklift licence, that seems unlikely. Price rises well above cost increases are a more likely explanation.


What about energy? Huge profits in annual reports match the bigger numbers on energy bills. Origin Energy’s latest spells it out: “Underlying profit increased to $747 million, $340 million higher than the previous year due to improved earnings across all our operations.”


Usually, companies provide percentage changes on the prior year for such metrics. Origin did so for its integrated gas division but not its energy markets division. Maybe a whopping 158% increase in underlying EBITDA, from $401m in 2022 to $1.03bn in 2023 is a little too good.


Across the world, corporate profiteering is now acknowledged as a major component—perhaps the largest—of the post-Covid inflation surge. Studies supporting this view have been published by the European Central Bank, the OECD, the Bank for International Settlements (BIS), and the European Commission.


In June last year, the International Monetary Fund said: “Rising corporate profits were the largest contributor to Europe’s inflation over the past two years as companies increased prices by more than the spiking costs of imported energy.”


It seems improbable that in Australia, a highly concentrated economy with a host of industries extracting monopoly rents, profiteering isn’t also a major cause of inflation.


The data bears this out, and not just in annual reports. Using the same ECB methodology, The Australia Institute finds that about 69% of the increase in inflation above the RBA’s target rate is due to corporate profiteering.

Propaganda front​

Companies are mounting a counter-offensive. For much of last year, the Business Council of Australia was howling about the risk of wage-price inflation just as its members were jamming through massive price increases. It continued before Christmas when the AFR invited CEOs to offer their thoughts on the year ahead. Instead of the usual guff, although there was plenty of that, some took a more gentle approach.


Perhaps you can guess which ones. “We know that many of our customers are under real pressure,” said Woolworths’ Banducci. Ah, bless. Leah Weckert said Coles knows “there are many Australians who are feeling the effects of high cost-of-living pressures” and that it is “continuing to invest in value to help our customers’ budgets stretch a little further”. So sweet. Frank Calabria of Origin said the company was “incredibly mindful of the pressure consumers are under with rising costs.” Consumers who were stiffed last year will be pleased to hear it. After bleeding consumers dry, the charm offensive has begun.


None of this should be a surprise. There is no obligation on companies to ‘do the right thing’. There is, though, a legal duty to maximise shareholder returns. One might argue whether jacking up prices beyond the rate of inflation is the right way to go about it but the law is clear enough: a company is to be run for the benefit of its owners, not its customers.


Joyce, Banducci, Weckert and Calabria are simply doing their jobs; extracting the highest possible prices from customers, without risking them going elsewhere, accompanied by a propaganda campaign that shows their soft, caring side in the forlorn hope consumers won’t notice.


The results speak for themselves. Whilst unit labour costs haven’t kept pace with CPI, unit profit costs have raced ahead of inflation. The pandemic was a banger for big businesses. Inflation is being driven by corporate price gouging, not greedy workers who have experienced real wage declines over the past few years.

Source: Greg Jericho, via Macrobusiness​

If there is a failure it is institutional rather than commercial. Politicians are too easily bought, as the East Coast gas cartel knows; entire sectors are too concentrated; and regulators are too weak. The Reserve Bank’s swallowing of the corporate propaganda captures the institutional failure that bedevils the country.


Whilst the rest of the Western world noticed the role of profiteering in 2022, only in November last year did the RBA (weakly) admit it might play a role: Maybe they’ll get to actual profiteering in early 2025, perhaps after reading some of the annual reports noted in this article."

 

[Value Hunter]

So there you go value collector. The point I am making is that while consumer demand is a contributor to inflation it is one of the smallest out of all the contributing factors but for some reason it seems to be the factor you are most fixated on.

 

[Value Collector]

So there you go value collector. The point I am making is that while consumer demand is a contributor to inflation it is one of the smallest out of all the contributing factors but for some reason it seems to be the factor you are most fixated on.

No, I have mainly been talking about supply chain issues. But as I stated right from the start there is two main factors the first being monetary inflation.

i really don’t think you are actually reading my posts correctly, so will agree to disagree on this topic.

 

[divs4ever]

So there you go value collector. The point I am making is that while consumer demand is a contributor to inflation it is one of the smallest out of all the contributing factors but for some reason it seems to be the factor you are most fixated on.

although the consumer is only a small part of the inflation problem , it is normally a major part of the solution ( whether they chose this or not ) , governments rarely shrink ( in head-count or extravagance ) corporates have several tools , including head-count ( and limiting the income of some consumers .. former employees ) , but some residents will choose to leave the country reducing the consumer pool

 

[farmerge]

although the consumer is only a small part of the inflation problem , it is normally a major part of the solution ( whether they chose this or not ) , governments rarely shrink ( in head-count or extravagance ) corporates have several tools , including head-count ( and limiting the income of some consumers .. former employees ) , but some residents will choose to leave the country reducing the consumer pool

Just a bit of a side track humour me.
10 days ago when the tornado hit us, local servos were out also. had to drive to Midland to get fuel to keep the generators going. The local Ampol at the bottom of the hill was good. $1.625 a litre for unleaded. Next day, Wednesday jumped to $2.11 making this most of no fuel available where we are. We got our power back on, on Sunday evening at 5.30.

 

[wayneL]

Just a bit of a side track humour me.
10 days ago when the tornado hit us, local servos were out also. had to drive to Midland to get fuel to keep the generators going. The local Ampol at the bottom of the hill was good. $1.625 a litre for unleaded. Next day, Wednesday jumped to $2.11 making this most of no fuel available where we are. We got our power back on, on Sunday evening at 5.30.

GO TO THE ATLAS ON MORRISON RD.

 

[Smurf1976]

Just a bit of a side track humour me.
10 days ago when the tornado hit us, local servos were out also. had to drive to Midland to get fuel to keep the generators going. The local Ampol at the bottom of the hill was good. $1.625 a litre for unleaded. Next day, Wednesday jumped to $2.11

In case you're unaware, that sort of price movement happens in the major capitals routinely without needing a trigger. Literally a ~50c jump for no reason, then slowly comes back down. Happens every few weeks and it's a constant cycle.

It's one thing city people cop that regional areas are often free from.

 

[farmerge]

GO TO THE ATLAS ON MORRISON RD.

Wayne Petro at the other end of Morrison Rd is pretty good also, just a bit out of the way I was in a mad rush to get some fuel on Wed to keep the gen sets going, as we were told at that stage outage would not be a long one. That was wishful thinking. Got a text this morning that Gidge as a whole was back on stream

 

[farmerge]

In case you're unaware, that sort of price movement happens in the major capitals routinely without needing a trigger. Literally a ~50c jump for no reason, then slowly comes back down. Happens every few weeks and it's a constant cycle.

It's one thing city people cop that regional areas are often free from.

I found that out but I didn't buy from Ampol and was talking to our friendly Anglo Indian at Petro Fuels who doesn't part take in these ramp-ups, so he says.

 

[farmerge]

In case you're unaware, that sort of price movement happens in the major capitals routinely without needing a trigger. Literally a ~50c jump for no reason, then slowly comes back down. Happens every few weeks and it's a constant cycle.

It's one thing city people cop that regional areas are often free from.

Back in the 60's when I first got a driving licence there would have been a royal commision into fuel prices even if the rise was a half-penny, now 50c appears to be the norm if and when it suits.

 

[sptrawler]

although the consumer is only a small part of the inflation problem , it is normally a major part of the solution ( whether they chose this or not ) , governments rarely shrink ( in head-count or extravagance ) corporates have several tools , including head-count ( and limiting the income of some consumers .. former employees ) , but some residents will choose to leave the country reducing the consumer pool

The consumer is a huge part in the inflation cycle, the consumer to a large extent is the worker and the two main components that dictate inflation are wages and prices.
It is a positive feedback loop, if wages feed into the cost base, prices go up to compensate.
So that feedback loop has to be broken and it is extremely difficult to stop price increases, so wages take the hit and is why even though wages have risen disposable income has dropped.
Now the problem is the heaving mass of unwashed are pizzed off, so now it is time to put the blowtorch to prices ala the supermarket investigation to get them to get on the programme.
Smoke and mirrors grasshopper. Lol
The fly in the ointment is minerals under attack, that has really put a cat among the pidgeons. Lol

 

[Value Hunter]

The consumer is a huge part in the inflation cycle, the consumer to a large extent is the worker and the two main components that dictate inflation are wages and prices.
It is a positive feedback loop, if wages feed into the cost base, prices go up to compensate.
So that feedback loop has to be broken and it is extremely difficult to stop price increases, so wages take the hit and is why even though wages have risen disposable income has dropped.
Now the problem is the heaving mass of unwashed are pizzed off, so now it is time to put the blowtorch to prices ala the supermarket investigation to get them to get on the programme.
Smoke and mirrors grasshopper. Lol
The fly in the ointment is minerals under attack, that has really put a cat among the pidgeons. Lol

I disagree that the consumer is a huge part of the inflation cycle. If we had divide up what % of inflation is created by each cause (e.g. war, money printing, covid shutdowns, green agenda, corporate's profiteering, wages/consumers, etc) I would think the consumers would be fairly low on the list. This is where my disagreement lies with guys like you and Value Collector. The problem is that due to the economy being a complex dynamic system with reflexivity based feedback loops also that its hard to quantify such things accurately. If you go back to the 1970s stagflation consumer demand was weak as was real economic growth yet prices still kept rocketing. Therefore proof that dampening consumer demand won't end the inflation.

Here is what Milton Friedman said about inflation:

Milton Friedman: It is always and everywhere, a monetary phenomenon. It's always and everywhere, a result of too much money, of a more rapid increase in the quantity of money than an output. Moreover, in the modern era, the important next step is to recognize that today, governments control the quantity of money. So that as a result, inflation in the United States is made in Washington and nowhere else.

Friedman: If you listen to people in Washington and talk, they will tell you that inflation is produced by greedy businessmen or it's produced by grasping unions or it's produced by spendthrift consumers, or maybe, it's those terrible Arab Sheikhs who are producing it. Now, of course, businessmen are greedy. Who of us isn't? Trade unions are grasping. Who of us isn't? And there's no doubt that the consumer is a spendthrift. At least every man knows that about his wife.

Friedman: But none of them produce inflation for the very simple reason that neither the businessman, nor the trade union, nor the housewife has a printing press in their basement on which they can turn out those green pieces of paper we call money.

Here is a link to where I got the above quote from. Its worth reading the whole thing:

The Real Story Behind Inflation

What do you know about inflation? Milton Friedman famously said: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” Of course, we all know the driver of the quantity of...

www.heritage.org

Sure you can have temporary inflation in a handful of products due to shortages etc but long lasting widespread and persistent inflation as we are experiencing now is primarily the result of money/credit creation in the long term. That is why if you look at a data showing U.S.A. inflation pre creation of the federal reserve compared to post creation of the federal reserve the results are crystal clear. Free markets are inherently deflationary.

Sure crushing consumer demand might temporarily reduce inflation a bit but long term it won't resolve the issue for various reasons not least of which because of the negative feedback loop where falling demand will eventually cause producers to cut supply in response will prevent that from happening.

I get what guys like Value Collector and SP trawler are saying but I honestly think cutting consumer demand is just tinkering at the edges of the problem of inflation. The biggest gains of all would come from dismantling the wicked fiat currency system (and the associated fractional reserve banking that goes along with it).

Also deficit spending by governments is highly inflationary. Governments should balance their budgets that would help inflation a lot as well as making sure that their countries don't turn into banana republics due to poor finances.

 

[sptrawler]

I disagree that the consumer is a huge part of the inflation cycle. If we had divide up what % of inflation is created by each cause (e.g. war, money printing, covid shutdowns, green agenda, corporate's profiteering, wages/consumers, etc) I would think the consumers would be fairly low on the list. This is where my disagreement lies with guys like you and Value Collector. The problem is that due to the economy being a complex dynamic system with reflexivity based feedback loops also that its hard to quantify such things accurately. If you go back to the 1970s stagflation consumer demand was weak as was real economic growth yet prices still kept rocketing. Therefore proof that dampening consumer demand won't end the inflation.

Here is what Milton Friedman said about inflation:

Milton Friedman: It is always and everywhere, a monetary phenomenon. It's always and everywhere, a result of too much money, of a more rapid increase in the quantity of money than an output. Moreover, in the modern era, the important next step is to recognize that today, governments control the quantity of money. So that as a result, inflation in the United States is made in Washington and nowhere else.

Friedman: If you listen to people in Washington and talk, they will tell you that inflation is produced by greedy businessmen or it's produced by grasping unions or it's produced by spendthrift consumers, or maybe, it's those terrible Arab Sheikhs who are producing it. Now, of course, businessmen are greedy. Who of us isn't? Trade unions are grasping. Who of us isn't? And there's no doubt that the consumer is a spendthrift. At least every man knows that about his wife.

Friedman: But none of them produce inflation for the very simple reason that neither the businessman, nor the trade union, nor the housewife has a printing press in their basement on which they can turn out those green pieces of paper we call money.

Well to be honest I'm too old to give a fck whether you agree or disagree, I started my apprenticeship in 1969, I've lived through a lot of economic ups and downs, you work with your ideas, i'll work with my experience.
Were you there in the 70's?
I'll put it another way, you lease a coffee shop and you find if you sell your flat whites at $5 on most days you make enough to pay your bills, pay your rent, pay your mortgage, pay yourself and pay your 30 staff.
Then all of a sudden the Govt increases the basic wage 7%, that means 7% extra wages bill, compo, holiday plus leave loading, plus super, multiply that by 30 employees.
Meanwhile the owner of the premises, actually has his wages costs at his other businesses increase, so he ups the rent 10% to mitigate the cost and maintain his lifestyle.
So do you leave your costs the same and wear the extra costs, or do you need to put up your prices to compensate?


Anyway, no argument, best wishes on your journey.


By the way, I am in no way in the same league as VC, I'm just a grunt who has had a plan and still work to that plan.

Read my quote below.

 

[Value Hunter]

Also to the guys arguing about consumer demand nobody yet adressed the excerpt from the Eureka report article that I posted a few posts above about corporate profiteering. I will highlight the most important part below:

"In June last year, the International Monetary Fund said: “Rising corporate profits were the largest contributor to Europe’s inflation over the past two years as companies increased prices by more than the spiking costs of imported energy.”

It seems improbable that in Australia, a highly concentrated economy with a host of industries extracting monopoly rents, profiteering isn’t also a major cause of inflation.


The data bears this out, and not just in annual reports. Using the same ECB methodology, The Australia Institute finds that about 69% of the increase in inflation above the RBA’s target rate is due to corporate profiteering."


Also lets do some simple math on the "wage-price spiral thesis". For the last 12 months in Australia wages rose around 4%. A quick google search reveals that on average businesses typically spend between 15% and 30% of their revenue on payroll. So a 4% increase in wages would need an overall revenue (i.e. price increase) increase of between 0.6% and 1.2% to offset the additional cost.

According to the ABS "Monthly Overview The monthly CPI indicator rose 4.3% in the 12 months to November"

so where is the rest of the 4.3% increase (which other posters rightly pointed out is understated when you look at the living costs index) coming from and why is everybody so fixated on the wages bogeyman?

 

[sptrawler]

Also to the guys arguing about consumer demand nobody yet adressed the excerpt from the Eureka report article that I posted a few posts above about corporate profiteering. I will highlight the most important part below:

"In June last year, the International Monetary Fund said: “Rising corporate profits were the largest contributor to Europe’s inflation over the past two years as companies increased prices by more than the spiking costs of imported energy.”

It seems improbable that in Australia, a highly concentrated economy with a host of industries extracting monopoly rents, profiteering isn’t also a major cause of inflation.


The data bears this out, and not just in annual reports. Using the same ECB methodology, The Australia Institute finds that about 69% of the increase in inflation above the RBA’s target rate is due to corporate profiteering."


Also lets do some simple math on the "wage-price spiral thesis". For the last 12 months in Australia wages rose around 4%. A quick google search reveals that on average businesses typically spend between 15% and 30% of their revenue on payroll. So a 4% increase in wages would need an overall revenue (i.e. price increase) increase of between 0.6% and 1.2% to offset the additional cost.

According to the ABS "Monthly Overview The monthly CPI indicator rose 4.3% in the 12 months to November"

so where is the rest of the 4.3% increase (which other posters rightly pointed out is understated when you look at the living costs index) coming from and why is everybody so fixated on the wages bogeyman?

What you seem to be missing is, the only thing that the Government has any real control over is money and wages, in a capitalist system it is very seldom the Government interferes in the market place with regard prices, as has been shown when they have interfered in gas prices, super profit taxes etc.
Whereas wages, through the previous Industrial relation commission and now the fair work commission, is a playpen for Governments.
The Government actively encouraged wage rises and proudly admit it, which is fair enough, but as was pointed out by the RBA it is inflationary.

Corporate profiteering is only rampant, when there is either a lack of competition, or a excessive demand and limited supply of their product, if every corporation was making a huge profit companies wouldn't go broke. As I think David Jones will in the current economic climate.

When I was quoting for projects, an employees estimate for labour was 150% of their wage, to allow for superannuation, annual leave, leave loading, workers compensation, sick leave, long service leave, public holidays and public holiday loading, compulsory training days etc.
I don't know what it is these days.

But a 4% payrise would be on the basic rate, it won't include the other flow on payrises to keep relativity with the staff, unless your company only employs everyone on the basic wage.

On the 1 July 2023 the minimum wage went up 5.75%, that actually involves a knock on effect, believe it or not, where you pulled 4% from intrigues me..

Also it is the reason the proposed tax cuts won't be inflationary, because the cost of it isn't passed on to business, in the form of a payrise that would affect their bottom line.

The Government has very little control or mechanisms to control what shops charge, the shop charges what the market will bear, if the shopper isn't prepared to pay the price, or doesn't have the funds to pay the price, the goods don't get sold unless they are the only provider of an essential item.

They can charge what the hell they like, if wage earners don't buy it they go broke, with the holding costs.

https://www.fairwork.gov.au/newsroom/news/awr-2023#:~:text=Most%20employees%20are%20covered%20by,or%20after%201%20July%202023.

Company statistics reveal 62% jump in insolvencies

The 2022–23 financial year saw a significant spike in company insolvencies with personal insolvencies expected to follow a similar path this year.

www.accountingtimes.com.au

The worrying rise in corporate busts

More businesses are looking down the barrel of insolvency, as an economic slowdown crimps sales and squeezes profit margins as borrowing costs soar.

www.afr.com

 

[over9k]

In case you're unaware, that sort of price movement happens in the major capitals routinely without needing a trigger. Literally a ~50c jump for no reason, then slowly comes back down. Happens every few weeks and it's a constant cycle.

It's one thing city people cop that regional areas are often free from.

Simple price discrimination. Like when they know everyone are going to take the boat out on a long weekend they'll crank prices to make people pay through the nose to brim the tank.

I'd do it too.

 

[Smurf1976]

So do you leave your costs the same and wear the extra costs, or do you need to put up your prices to compensate?

Where that becomes a problem is when it results in a loss of customers.

I've never been involved with it in terms of work but from a few discussions with those who have, live entertainment is a difficult business to get right. Festivals, concerts etc especially the very mainstream ones there'll be a decent portion of "casual' fans who are only going because they've got nothing better to do. They're not serious fans of the artist, just people looking for something to and who vaguely know a few songs so they buy a ticket and go to the show.

There's a limit to what those people will pay and a point where increasing prices reduces ticket sales. Or in simpler terms, there's a maximum possible revenue from the event, the balance point between more $ per ticket and fewer tickets sold.

As household budgets tighten and the cost of putting on shows rises, it's not hard to foresee some events been squeezed out . Can't put the price up high enough to cover increased costs without killing ticket sales with the result being there's no way to cover increasing costs.

I don't think we're at that point yet, but it seems foreseeable.