“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.
Corporations don’t cause inflation. Inflation is a society wide phenomenon, largely due to long-term monetary policy (i.e. the fact that the money machine spent much of the last 20 years pumping money into the economy for bottom of the barrel interest rates).
And yes it can create a spiral where corporations preemptively raise prices because they anticipate inflation to impact their cost of doing business, thus causing more inflation.
I agree that monetary policy can be a driving factor, but so can many other factors. Demand increased during the pandemic as supply dropped. Also, cost-pushes seemed to be a big driver in the current cycle, mixed with rising wages. It’s reductive to say that inflation is caused by monetary policy, especially considering the current inflation is worldwide with very different monetary policies among the different countries effected.
However, all of it comes down to an effort to increase profits. Whether it’s pulled by demand, pushed by costs, monetary policy, rising wages - the inflated prices all happen because profits can be increased for corporations at that moment. Corporations are not increasing prices solely to cover higher costs for materials and/or labor. If they were, margins would remain the same. The margins are increasing rapidly.
Lots of factors drive inflation, but prices increase because corporations want to increase profit margins.