US Core inflation level lowest in 3 years

don't forget:
1. Trump reduced legal immigration (he did NOT reduce illegal immigration) - inflationary
2. Trump/now Biden Tariffs are inflationary
3. Anti globalization which unfortunately includes moves toward autarky are VERY inflationary & many countries are going that route.
4. & of course, low int rates for a long time.

1-3 are still in play. However, AI will likely lead to productivity gains which should relieve inflation. I think the Fed could still raise rates. Typically when int rates > inf rates, inf cools, but not always.

 

They were higher, of course.

- Supply curve moves left, due to Covid supply issues
- Demand curve moves right, due to government stimulus.

Equilibrium price goes higher, increasing profits. As input expenses/costs are often based on historical costs, revenue at current inflated prices minus costs at historical costs = higher profits.

It is basic economics and math. Now that supply curve and demand side are normalizing so are profits.

Also- a good chunk of the profit increase was due to oil / energy companies where the price of oil is set by world markets, not greedy corporate executives.

 

I think the Fed has done a good job esp considering the novel situation. Fiscal policy probably overshot & the Fed probably did not raise rates soon enough, but I don't think they've over tightened & I think int rate increases could still happen.

 

Winner!

The fact that the economy has not gone into recession is pretty good evidence that they haven’t over tightened.

Rates right now are close to long term historical norms.

 

that's not right. an increase in eq. price due to those shifts need not increase producer surplus - profit. You gotta remember that a leftward shift of supply reps higher cost to producers. as usual elasticities are key.

 

But as I noted in my posts accounting costs are often historical costs, so there can be a lag. Eventually it should catch up, as it has. Also some costs are fixed, including prior investment (like oil drilling)

 

you can have those shifts & have profit go down. that's all I'm saying. let's say I have a hacky sack boutique on Pearl st. My fixed costs (rent) = $1000. I buy HSs for .05 from Guatemala & sell them for $5. I make $4.95 per hacky sack in contribution margin. obv I have to sell 202 (1000/4.95) to breakeven. Lets say I sell 1000 & my profit hence is $3950. Now let's say demand does go up & I can now sell 1100 for 5.50, so my profit is $4995. Now, Biden wants to protect domestic manufacturing & bans foreign hackies making my cost $1. That shifts my supply curve left raising price & reducing quantity sold. Let's say the price goes up to 5.75 & demand goes back to 1000. now my profit is $3750. further, technically, the supply curve is the economic cost which exceeds the the accounting cost b/c it would include opportunity costs.

 

I’m not arguing with any of that. I can see where a sudden supply cutoff could raise the price, raise the profit per unit, short term, but may or may not increase total company profit, which depends on quantity sold. In my example I was using profit as a percent to GDP, which to an extent, reflects changes in volume.

Let’s take oil, which is a big driver in this whole thing. Oil supply is cut off, demand stays the same, and price goes up, a lot. In the short term the cost inputs have really not changed, so profit per unit goes up a lot. Now in time those higher oil prices will flow into other goods as higher cost inputs for other products but that isn’t instantaneous. So mostly what I am talking about is a timing issue - a sudden decrease in supply and a fairly sudden increase in demand due to fiscal stimulus, resulting in a higher price, higher price per unit, and higher profit as a percent to gdp. Eventually those things should equalize and level out, which is exactly what seems to have happened.

In your example of hackie sacs, what happened is they ran out of tankers to ship the units from China. Also the government has issued stimulus checks for young unemployed people to play hackie sack during the pandemic. The immediate supply is constrained, so the price goes up. Demand is increased so the price goes up. The cost of those hackie sacs created 2-3 months ago pre pandemic has already been set, so profit per unit goes up. Eventually the supply exhausted and new ones are manufactured at higher costs that offsets the higher price.

 

pretty sure I've been clear all along. I am only saying that this is not correct. That's it.

They* were higher, of course.

- Supply curve moves left, due to Covid supply issues
- Demand curve moves right, due to government stimulus.

* profits

 

profits were higher, prices were higher, supply decreased, and demand increased. Those are all demonstrably true.

 

So what are your thoughts on the corporate greed is causing inflation narrative?

 

what's happening? Yes, that can happen. I never objected to that. Again, this is wrong.

"They* were higher, of course.

- Supply curve moves left, due to Covid supply issues
- Demand curve moves right, due to government stimulus.

Equilibrium price goes higher, increasing profits.

* profits"

Those 2 shifts are not sufficient conditions for producer surplus (profit) to increase. Eq. price can go up & profits can go down. demonstrated in a post above.

 

I understand that the two things could happen and profits go down, not up. That’s not what happened during/post Covid, which is what we are talking about.

I’m more interested in your thoughts about “ greedflation”

 

Ok, may have been inflated a bit by the using 2020, but you make the point quite adequately by using the 21 numbers. They are great!!!

 

"Inflated a bit." Translation, they decided that the 21 numbers weren't high enough, so they chose to use higher numbers, which were a lie, to make the economy look worse. So not only did they select specific categories that exceeded general inflation, they chose to lie about even those numbers, as Fox didn't feel like the numbers were high enough to lead to the desired emotional response.

 

Whoa there big boy!!!
25% was number from 2020 and 20% is number from 21 and you think that is painting a much different picture? Fine, instead of cost like $120 for $100 in 2020 it is like $116 from 2021. Yup you are right they painted the picture significantly worse.

 

Apparently, Fox does. Because they knew that the 25% number was a lie (unless they seriously don't know when Biden was inaugurated). And they chose to run it anyway. Why do you think they did that?

 

I don't know and don't really care!!! But, you go right ahead and just keep on defending that 20% is so much better than 25%! That was the point not that Fox has bias, that everyone on the right admits. It's the left that claims CNN, MSNBC and all the others play right down the middle, with maybe, just maybe they have a slight left lean.

 

It isn't "bias." It is an outright lie. Bias is selecting the high inflation categories and ignoring the lower inflation categories. Or, to use your argument, it is claiming they only missed by 5% using one of the figures and ignoring the one where they missed by 13%.

They did that too. But the issue here is that they said something completely untrue. That isn't bias. It is a lie. And those sorts of lies and bias lead to the result where Republicans think the economy is worse than it was in 2008-2009, which is just absurd.

 

I am not sure this counts as greed but prices always are slippery on the way up and sticky on the way down.