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this post was submitted on 13 May 2024
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Inflation is a macroeconomic phenomenon. It's silly to attack grocery stores for an economy-wide rise in the price level. As if Walmart wasn't greedy during the 2010s when inflation was quiescent, and suddenly became greedy now, just because.
What actually caused inflation was the big spending by both Trump and Biden, not funded by tax increases. The US federal budget deficit is now over 6 percent of GDP, and is projected to keep ramping up. And the Federal Reserve has been slow to raise interest rates to sterilize various federal spending increases, like the Covid spending packages and the Inflation Reduction Act. These are classic ingredients for inflation.
So, plenty of blame to go around, but it's mostly in Washington, not individual companies here and there.
Can you use changes in monetary policy to explain why grocery store profits are higher than before? I would think that in the event of inflation stores would stabilize to profits that are roughly the same (percentage wise) as they were prior to the inflation occurring. To the best of my knowledge, this has not happened.
This is the first article I found, and in it they don't mention any economic policy as a major cause.
When an economy undergoes inflation, not all prices rise by the same amount. That's one of the reasons high inflation can be so disruptive. For example, wages (the price of labor) often rise some time after other prices, to the detriment of some wage earners.
It's pretty believable that grocery store chains have acquired enough market power that they're able to pass on all their cost increases to customers, and more, thereby increasing their profit rate. But the fact that individual companies and sectors are well placed to cope with inflation doesn't explain the economy-wide and world-wide inflation.
We can also look at the "companies have market power" explanation using the overall labour share, which measures how much income is going to labor vs capital, economy wide. It doesn't seem to have shifted much during the recent bout of inflation. But again, individual wage earners have seen huge disparities, including some who have been made much worse off by the inflation.
But why are the prices of food rising faster than the costs paid by companies (this is inclusive of all costs)? The naive assumption is that if all costs were originally x and prices were 1.1x, then as costs become 1.3x, prices become 1.1*1.3x. However, their profit margins as a percentage rose. So instead of 1.1 we now have 1.4.
Obviously the numbers used are fake, but this is why people are angry and it's not something I've seen explained using economic principles that don't involve terms like market consolidation at best or collusion at worst on any article. Rage sells so telling people their groceries cost more because there aren't enough grocers or the grocers are collaborating is good business for newspapers as long as they can find an expert or group to make the allegations for them.
The idea of prices going up and down by the same amount is based on an equilibrium situation. This isn't ruled out; it could very well be that the high profits of grocery companies is transient (or "transitory" as they say). But in the short run, prices don't move in lockstep.
Aside from market power or collusion, there are other reasons prices could shift more quickly for some sectors than others (even as all prices are going upward). For example, does the industry rely on long term contracts or short term contracts? Is inflation hedging widely available for the goods and services in question? Is the activity more or less sensitive to interest rates?
But these are questions about relative prices. Instead of playing a game of whack a mole, better not to set off inflation in the first place.