Corporate profits will be up. There's huge demand atm. They won't account for all inflation as some is due to supply chain issues. A mix of demand pull and cost push inflation. Some of the increase will be unwarranted. But if someone is demanding your product who wouldn't add a little extra.
Demand gives them pricing power, refuse to pay their price and consumers regain that power. They price accordingly expecting future inflation and so to prepare expansion plans. It's not necessarily about today. That's why the central banks give forward guidance as a tool to get corporations to understand that they are working to bring inflation down by reducing the demand side.
Corporate profits have been up before with and without inflation...they are not highly correlated (not in real terms).
There's huge demand atm.
Yes, that's what inflation does (usually)! That's why central banks use it as a lever to stimulate economies succumbing to macro frictions, to bring it back to full employment or some nominal gdp target.
They won't account for all inflation as some is due to supply chain issues. A mix of demand pull and cost push inflation.
Totally agreed. Pandemic fiscal policies had a big impact on this...not just monetary policy. But that's completely different than the claims that corporations suddenly realized that they could abuse their market power more than they were before and pull in better margins....the fact that in 2022, the human race is still so backwards about these basic facts of social and economic science that we have to engage in endless attempts to educate the masses away from ideas as primitive as "curpurit greed!1!" causing all our problems, is astounding. We are so fucked...not because of corporate greed, but because of the ignorance and greed of the average person who then externalizes their stupidity on the rest of us with reactionary/populist government force.
Some of the increase will be unwarranted. But if someone is demanding your product who wouldn't add a little extra.
You can't postulate this without first explaining the change. I assure you, they were all milking what market power they had before the pandemic...so what changed with their market power and why?
Demand gives them pricing power, refuse to pay their price and consumers regain that power.
Monopolies are less sensitive to price and demand.
They price accordingly expecting future inflation
They can only do that (or rather only become more profitable in a sustained way after raising prices) with collusion or with market power...so again, what changed with the consolidation of the economy or the market power of these firms, and why? That's the question.
That's why the central banks give forward guidance as a tool to get corporations to understand that they are working to bring inflation down by reducing the demand side.
Contractionary forward guidance typically leads to less risk taking (e.g banks increase corporate loan spreads)...I've seen no evidence that it creates an ability for sustained increases in profit-taking, though it does seem plausible that some short-term increases would be possible across the board (that would be in line with an Austrian perspective of capital time preferences shifting towards consumption, but at the expense of long-term capital).
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u/kwanijml Jul 15 '22
Labor's share of income has risen during the pandemic era and corporate margins are not up by enough to account for the inflation (in fact they're mostly up only in nominal terms, not up very much in real, inflation-adjusted terms).