There was a traditional logic that if people were awarded high pay rises then this would cause inflation to rise. The theory being that if you had more pay then you spend more or are able to buy more expensive stuff. This drives up inflation.
But that surely assumes that these pay rises are above the existing inflation level? Currently the pay agreements, even quite high ones, are pretty much all below the inflation levels. So the pay rises do not allow more spending and certainly not spending on more expensive things. The below inflation pay actually still means constrained spending, just with almost the ability to keep up with existing price rises.
So do these pay rises cause inflation or is inflation already happening? At if it is, then the only cause can be businesses putting prices up. And if they are doing that, then surely we would see a significant rise in business profits? Oh, that is exactly what’s happened. So the BoE actions to control inflation should not be against people in the UK but actions directed at businesses!
'Twas ever thus:
However, excluding North Sea oil and gas firms, which showed a slump in profitability in the first quarter as energy prices fell from their peaks, dragging down the average, the level of profitability for most firms jumped from 9.6% in the last quarter of 2022 to 10.6% in the first quarter of 2023.
Richard Murphy, a professor of accounting at the University of Sheffield, said low wage rises in most sectors outside financial services meant large companies were probably doing much better than smaller ones.
Published: 16th January 2023
- Super-rich outstrip their extraordinary grab of half of all new wealth in past decade.
- Billionaire fortunes are increasing by $2.7 billion a day even as at least 1.7 billion workers now live in countries where inflation is outpacing wages.
- A tax of up to 5 percent on the world’s multi-millionaires and billionaires could raise $1.7 trillion a year, enough to lift 2 billion people out of poverty.
Of course, billionaires expect high returns on their business investments, they don’t pay tax on their profits and they don’t redistribute their wealth they accumulate … 
Those, like the banks, who assist in their business “ventures” expect, in their turn, to turn a penny or two … 
I think the most astounding is the difference between the rich and the super rich.
A million seconds is about 14 days whereas a billion seconds is over 30 years.
Elon Musk has something like $184 billion, if you gave him a $100,000 every day (a good annual salary) you would have to start giving it when the Pharoh’s ruled Egypt to give him his wealth by today.
Those facts are from memory so might be a tiny bit off but they are roughly right.
The amount is staggering.
There is no question that the amount of one single billion is staggering. 184 of them though.
I’m trying to do the maths. At $100k per day that is 36.5m per year (bit better than ‘good’). Or $3.65 bn per century. So you’d wait 50 centuries to reach Musk’s $184bn.
Checking out 5,000 years ago - this predates writing (early Egyptian & elsewhere in the near east at about 4,600 years ago). So even worse than you recalled… but if you factored in say an interest rate of maybe 3% on his savings it probably works out at a bit less time. I’m just not sure how banking worked before writing.
We know that inflation is due to a wide(r) range of factors. What shouldn’t be neglected is the labour market and labour productivity. A shortage of labour causes wages to rise which, in turn, pushes inflation. Moreover, if pay rises are higher than productivity, it results in higher inflation rates, too.
So, the two central questions seem to be:
- How high is labour productivity? If it’s lower than elsewhere, what are the reasons for that? Chiefly, it’s a lack of investment, which raises the question of why this is so?
- How tight is the labour market? If vacant jobs are plentiful and available workers are scarce, what is it caused by?
You are right that inflation is due to many factors. And there can, as you highlight, also be a link between rising employee wages to inflation … but this happens if the businesses decide to raise prices in line with that increased cost. In that case their profits would remain the same. But the point of the article shared is that profits are rising significantly. So businesses may be seeing an increase in costs but they are not simply passing these on - they adding additional profit margin on top. That is the so called Greedflation.
I’m pretty sure I understood both the article and your post. I just thought that the article is a bit one-sided by giving the impression that greedflation was the main driver of inflation since no other factor was referred to or did I miss any ? I don’ t deny that inflation is partly caused by some companies and industries taking advantage of the crisis by putting up prices under the pretext of increasing costs to maximise their profits. Given that an excess profits tax is difficult to implement, they can only succeed in passing on increases in costs if there’s a lack of competition for which again there are reasons. Governmental intervention to the benefit of low income groups might also help to curb the effects of inflation.
My point was that other, more inherent, factors that I mentioned need to be taken into account as well. If it is true that inflation is due to multifactorial reasons, then focusing chiefly on those corporate inflation adjustment strategies of companies seems a bit too monocausal an explanation. After all, it’s a question of how all those different factors are weighted.
Hey, I didn’t mean to insult your comprehension. And you make a fair point about the challenge of addressing excess profits by companies swinging prices up beyond the impact of their costs. However my observation is that the government and the BoE is following a route to address inflation that is dependent on spending squeeze by consumers. I think the logic goes: hike up interest rates, most people’s household budgets are squeezed, spending becomes constrained, people seek lower cost products, businesses have to compete to win customers, businesses lower their prices. (or stop increasing their prices so much), thus inflation comes down. Its worked before and left misery behind. But this looks like causing suffering of many people as they are the lever in this mechanism. And that seems very unfair. Why not directly address the issue of businesses hiking prices excessively and making excess profits? Why rely on making the majority of people less well off to achieve lower inflation?
Plus, one suspects businesses know this cycle and have hiked prices to allow them to (partially) reduce prices later in a cost cutting phase. So the high inflation is caused by these excess price hikes which have been put in place to allow partial price cuts needed in the phase when the BoE applies measures to address the inflation caused by these businesses. Now that presentation of the problem really makes me think the penalties should be applied to businesses and not people.
A third of the adult autonomous living Uk population are mortgage payers, why make a minority responsible for controlling the course of an economy?
Because its the only tool in the toolbox spitty 
This weaponization of interest rates has to stop 
It’s a broad subject so let me just pick up on the two questions you raised.
Why not directly address the issue of businesses hiking prices excessively and making excess profits?
Is it not ? As far as I know, an excess profits tax had been temporarily introduced in Britain and the US during the two wars and has been directly addressed again during the pandemic in these and other countries and has been introduced in some countries. The effect is questionable, though.
Why rely on making the majority of people less well off to achieve lower inflation?
The answer will inevitably state the obvious: Because inflation targeting shows that fiscal policy is not unbiased but reflects how the costs and benefits of inflation management are distributed across society. Has it ever been different and can it really be changed? What would be tried and tested alternative ways of curbing inflation?
If your suspicion expressed in the last paragraph of your post is true, then the equivalent to businesses reacting flexibly to fiscal measures would be for employees to be able to do the same by saving money and deferring payment as was suggested by Keynes during the war. Not surprisingly, his proposal has never been implemented by those in power. How realistic is it to expect a change in policy?
I was ducking the challenge of offering a solution - and no doubt solutions would be hard. But it does look like a deeply unfair system where one part of society gets off largely without penalty (senior business people and business owners) whilst everyone else pays the penalty.
The problems with price hiking shows that the market is not always right and can be manipulated. Such manipulation does not need cartels - simply many suppliers working out the same tactics. I’m far from convinced that the “free market” is always the right answer.
One thing you did not mention is price fixing by the government to stop inflation. I believe that through consumer associations & government rules the price of a standard baguette is still, to this day, fix in France. It is possible (that statement is different from me saying it is desirable).
Can you give an example? I haven’t heard of it ever having happened. No, I deliberately didn’t mention price fixing because it’s political pricing and as such considered just as unpopular as any government intervention by market advocates.
Surely what we are seeing over the last year is a clear demonstration of this. There are relatively few major suppliers of major brands in many product categories. Some categories are dominated by only 2 or 3 major suppliers. It would not be that difficult for both to work out that its been a good time to drop in 10%+ price rises (actually in some categories there have been 20-30% price rises or more). Shortages on the shelf have given suppliers leverage with the supermarket buyers. The supplier account managers and product managers are incentivised to maximise profit as well as selling volume. But in the post-Covid time of shortages the only real measure is profit. So they would all lean on this aspect of the deals with supermarkets. Who would be grateful to keep the shelves full. I suspect at times the supermarket buyers were being told the just get stock. So no need for secret supplier deals. Just everyone incentivised to one outcome in a unique set of circumstances. Result - inflation. In fact, I’d be astonished if this was not behind a lot of the price hikes.
What you’re writing can’t be dismissed out of hand but it’s still largely based on speculation and suspicion, isn’t it. What strikes me is that there’s conspicuously little media coverage and if there are reports, they usually don’t get beyond the early stage of investigations and initial suspicion. There are hardly any on closed cases. At my end there’s no difference between cartel agreements of bigger companies and , say, agreed tactics or practices between smaller firms. Cartel law applies to all businesses even including, say, two innkeepers in the same village agreeing on the price of a pint. That’s why I was asking.
Human instinct, who needs it, on the other hand AI, who needs that? 
Is it a question of needing them? Both can be deceptive, so I wouldn’t trust either of them. 
Its good not to be needy, the luxury of seeing it play out 
I would agree that its speculation, but informed speculation based on some knowledge of the industry and behaviours in this environment. And I would not be surprised if company executives from competing firms had off the record chats that established tacit consensus on future actions. Not a cartel, not formal, not traceable - just a chat about a shared view of a ‘common sense’ approach to claw back some of the margins that tough supermarket buyers have eroded over the years. After all, why not take advantage of a unique set of circumstances?
Cartels, even relatively formal in their set up and orchestration, are very difficult to identify and even harder to prove. I can only think of only one or two successfully prosecuted cartels over the last 20 - 30 years.