The economy’s strength and stability — defying many of the most optimistic predictions — represents a remarkable development after seemingly endless crises
As 2023 winds to a close, Powell and his colleagues are far from declaring victory on inflation. They routinely caution that their actions could be thwarted by any number of threats, from war in the Middle East to China’s economic slowdown. Americans are upset about high costs for rent, groceries and other basics, which aren’t going back to pre-pandemic levels. The White House, too, is quick to emphasize that much work remains.
Yet the economy is ending the year in a remarkably better position than almost anyone on Wall Street or in mainstream economics predicted, having bested just about all expectations time and again. Inflation has dropped to 3.1 percent, from a peak of 9.1. The unemployment rate is at a hot 3.7 percent, and the economy grew at a healthy clip in the most recent quarter. The Fed is probably finished hiking interest rates and is eyeing cuts next year. Financial markets are at or near all-time highs, and the S&P 500 could hit a new record this week, too.
It’s pretty basic supply and demand. Inflation historically goes up in an economy when a lot of people want to buy stuff, and that stuff is in limited supply.
Workers had cash and stimulus money = higher demand
The pandemic fucked with good manufacturing, and transport = reduced supply
When there is less of something, and people have money, they’re willing to pay more to get their hands on the scarce thing. Companies pay more for chips, or to have first dibs on something from the port, and that increased cost is passed along to the consumer.
Are we really still pretending the “stimulus” money of a whopping1400 actually had an impact for 99% of people?
No, but 3 years of pent-up demand and crippled supply chain infrastructure did
If it was merely an increase in costs, corporate profits should be neutral after they hike their prices to match. Same ratio going in and out.
What we actually saw was corporate profit margins going to record highs. Some sectors did see actual price increases–pandemic supply constraints, the Suez canal being blocked up by a shipping accident, and the war in Ukraine all did cause upward pressure on prices in some sectors. However, none of it could explain the data fully.
Even worse, those corporations saw 15-20% profit margins for the first time ever, and now their public stockholders expect them to keep doing it forever. This is insane. Big tech firms can see that kind of margin, but they’re the exception. Not even banks see those margins on the regular. The belief that they can has driven many of the layoffs from otherwise profitable companies this year.
Corporations used world events as a cover for increasing prices. They had a once in a century opportunity to cover their actions and took it. To be honest, it usually is the case that prices don’t just go up as a matter of greed. That’s not what happened this time.
You might see that initially, but all of the little supply and demand changes start to inflate the overall value of the dollar, that starts to show up in profits.
Every company is affected differently during times of high inflation. I work for a fortune 50 company that had their earning take a hit because of inflated prices. That said, profit margins for many companies absolutely can and do inflate with the value of the currency.
Your profits are fuel for future investments, and if your finance team is doing their job correctly, they are making sure that profit is adjusted for inflation.
You’re ignoring both the rise in demand and the increase in available spending money, and misunderstanding the relationship between profits and price.