“We’re seeing this expansion of margin under the cover of, ‘Oh, it’s a general inflation problem, we can’t help it,’ Paul Donovan of UBS said Thursday.
“We’re seeing this expansion of margin under the cover of, ‘Oh, it’s a general inflation problem, we can’t help it,’ Paul Donovan of UBS said Thursday.
Why does profit need to increase as a percentage? If prices were only raised to $120 you’d still he making the same amount of profit
Because that is how inflation works. If it helps here’s an example using the big Mac index.
Say pre inflation, I make enough profit to buy 5 big Macs. After inflation, my profit is now only enough to buy 4. In real terms, my profit has gone down, if I don’t increase it proportionally to inflation. Thus, by keeping profits to only $20, profits would have decreased in reality (just like the example of the worker bee below when their pay doesn’t increase proportionally with inflation).
Of course, this is a very simplistic view where inflation is the only factor. There may be other pressures that would make it difficult for a company to raise their prices to maintain the same profit ratios, i.e. supply/demand constraints.
The general point is with inflation, the raw numbers of everything increases. If you see a report about record profits, but they are only speaking in $ terms, don’t assume it is price gouging. There isn’t enough info given either way, and it is important to avoid falling into the trap of using incomplete data to confirm your biases.