Can't chase inflation... Hmmm

So I can understand the government's reasoning, during the public sector pay talks, about not chasing inflation.

Kinda confused why they then think that it's just dandy to allow increases to public infrastructure (I know it's PPP but they agree the increase), in line with inflation and consumer price index.

They are literally shafting their employees here. They have forced their employees into commuter towns, with zero reliable public transport, admit that there are "costs to business" but will deny costs to their employees. Why is it fine to pay private business an increase but not the people struggling on depreciating pay?

Before anyone asks; I don't use the tolls, I just admire their bald hypocrisy

https://www.rte.ie/news/ireland/2023/0701/1392148-toll-charges-increase/

readoutloud

I reckon this is an interesting argument to consider in the chasing inflation debate..

https://www.theguardian.com/commentisfree/2023/jun/28/wage-rises-inflation-rightwing-myth-greed-business

Nody

Mod:

OP I've moved it to a more suitable forum; note a new charter is in place.

Fr Tod Umptious

Inflation is too much money chasing too few goods.

I am paid €100 a day to produce 100 units of a product.

Inflation has risen to 10%.

So let's say I start getting paid €115 to beat inflation.

What happens?

Inflation only gets worse because I'm still only producing 100 units and I now have more money.

So just increasing wages for the sake of it to match or beat the inflation rate will get you nowhere.

Sam Russell

The trouble with inflation, is that price rises that are justified by 'it is because of inflation' are self fulfilling inflation chasing.

If I must increase my prices because of rising input costs, that is OK, but if it is because of inflation - then that causes inflation.

My 48 mobile contract, a 'for ever' contract, has been changed from 'a calendar month' to a 'four week' contract, meaning 13 charges per year rather than 12 charges. This represents an unjustified increase of 8.3%. That is unjustified inflation.

Vodafone and other companies have written into their T&C that price rises for their services will rise annually by 3.9% plus the rise in the consumer price index. They are forcing a 3.9% inflation on top of inflation. This should be deemed unlawful. It also gives permission to other providers to copy, as there is little real competition in the market.

I know it is counter-intuitive, but the 'buy one, get one free' and multi-buy offers should be banned because they are encouraging waste (buy more than you want) and are illusory - because the product is (or probably is) a loss leader, and it is the producer that bears the cost of the offer. Below cost selling should be banned, and unit pricing should always apply for most products. For example, selling a 24 can slab of beer (or soft drinks) should cost 24 times the cost of a single can - there should be no advantage for such selling offers - it only causes greater purchases than are needed. You do not see this activity in fuel sales, or even loaves of sliced pan bread.

This inflation chasing activity should be called out, and action taken by regulators to stop it. [If that is possible.]

Padre_Pio

https://www.boards.ie/discussion/comment/120794375#Comment_120794375

This inflation is the same money chasing too few goods.

Let's be honest, wages have been fairly static over the past 10 years but everyone is producing less over the past few years due to BREXIT, COVID, Ukraine, chip shortage etc..

Fr Tod Umptious

https://www.boards.ie/discussion/comment/120794513#Comment_120794513

And that's why we have the current inflation spike.

Once China gets back to full production post COVID (if they ever do) then things might ease.

Wanderer78

https://www.boards.ie/discussion/comment/120794570#Comment_120794570

...our current inflation is whats called 'supplied side' lead, it has little or nothing to do with the demand side, i.e. money supply, and central banks can do little or nothing about this form of inflation, as they dont supply our goods and services, we now also have sufficient data to support this such as...

It's supply side and I know that they're trying to not bake it in but it's frustrating to hear them say that employees can't expect pay raises while jacking up government co-pricing, to the maximum level, whoc6h is directly linked to the rate of that inflation

Pete_Cavan

I'm pretty sure the increase in tolls on PPP roads is due to clauses in the contracts which link tolls to CPI or similar mechanism, rather than just an increase for the sake of it.

https://www.boards.ie/discussion/comment/120801111#Comment_120801111

It is but, again, government can deal with consumer price index and inflationary pressures, for business, but not employees

Pete_Cavan

https://www.boards.ie/discussion/comment/120801507#Comment_120801507

If contract clauses require toll increases on PPP roads, then the government can't avoid them.

https://www.boards.ie/discussion/comment/120801507#Comment_120801507

Are you also willing to take pay cuts in times of deflation then? If so, your pay would have been cut a lot more with widespread job losses with the collapse of the economy 10 years ago.

https://www.boards.ie/discussion/comment/120810705#Comment_120810705

I lost my job, during the recession, that's a hefty paycut I think. Also there was not much actual deflation back then

https://www.boards.ie/discussion/comment/120810885#Comment_120810885

Of course there was. Landlords couldn't give apartments away to rent. All take and no give from you it appears.

https://www.boards.ie/discussion/comment/120811009#Comment_120811009

Yeah one broken sector of the economy which was correcting (for all of 16 months then flew up again) and even that "correction" drove -5% vs the recent 10%+

A sector which, like today, was allowed to inflate beyond reason.

There was feck all in the real day to day purchases deflation for people.

Companies used that excuse to shed thousands of jobs, just like they are doing now, as I had first hand experience of.

Our government used the crisis to stagnate wages, pretty much, so our PS still is understaffed at the critical points. They implemented hiring freezes so that our services are still not recovered. Post pandemic and we're STILL chronically short of ICU beds.

So yeah there were effective pay cuts. People were expected to do more with less resources.

Our government is baking in increased costs or allowing profiteering, across the economy. Tolls, heating, transport, energy. Increasing taxes/charges on critical supplies, while ignoring companies making a killing.

A lot is out of their control but a lot could've been countered. They've not bothered to try and are creaming in the extra taxes.

In the same breath they're saying that pay increases will solidify price increases.

"All take and no give from you it appears."

Ad hominem

AbusesToilets

It's pretty rich to hear economist talk about how wages shouldn't be raised for fear of driving inflation, when the real value of minimum wage has been stagnant since the 70s (in the US at least). It's naked profiteering.

Sam Russell

https://www.boards.ie/discussion/comment/120816724#Comment_120816724

Actually, the USA federal minimum wages is not much above the actual level of the 1970s. However, there are state minimum wage rates that have advanced, but certainly have fallen back in real terms.

blanch152

https://www.boards.ie/discussion/comment/120794375#Comment_120794375

The problem with that is that it doesn't take into account business profit.

You are paid €100 a day to produce 100 units of a product which sell at €2 each, making total revenue of €200, other costs are €50 and the business makes €50.

So inflation means that the other costs go to €75, a 50% increase. The business hikes the price of the product to €3, a 50% increase, and claims it can't increase your wage because that would be chasing inflation. After all that happens we have a situation where revenue is now €300, up 50%, wages are €100 unchanged, costs are €75, up 50%, and business profit is €125, up 150%.

Hardly fair?

Sam Russell

https://www.boards.ie/discussion/comment/120865929#Comment_120865929

You did not include taxation in you example. Taxes on business include LA Rates/Property taxes, Profit taxes, etc. Employee taxes should be included - PRSI, Income tax, etc. That is normally referred to as fiscal drag - which also gives rise to added inflation.

There is also the effect on margin to a business. Businesses usually try to keep inflationary prices down for fear of losing trade. However, when they see trade is unaffected because all businesses must react to prolonged inflation, they restore or increase their margins - causing more inflation.

Most workers measure their pay in the take-home figure in the pay packet. However, the last €1 has a higher tax element than the first €1, so to balance the actual cost of a 5% inflation might require a gross pay rise of 7% or 10%, depending on actual pay level. This gives rise to more inflation.

Inflation is nasty for everyone.

blanch152

https://www.boards.ie/discussion/comment/120866210#Comment_120866210

Assuming all taxes remain the same, they don't affect the example.

Inflation is nastiest to employees, less nasty to businesses.

Wanderer78

https://www.boards.ie/discussion/comment/120866338#Comment_120866338

...say that to the many sme's struggling the last couple of years cause of it, and the some that had to permanently shut! too much is simply too much, for everyone!

Sam Russell

https://www.boards.ie/discussion/comment/120866338#Comment_120866338

Taxes cause fiscal drag because they remain the same - income tax is the biggest example of it. This affects discretionary income after taxes, and obligatory costs like rent, energy, and basic food. The loss of such discretionary spending affects many businesses, particularly SMEs.

It drives some businesses into closing down and bankruptcy. At least employees can move jobs.

blanch152

https://www.boards.ie/discussion/comment/120866432#Comment_120866432

Phoenix businesses are all around us. Businesses can start again.

Business profits should be squeezed during inflationary times, while workers should be protected from the effects of inflation.

Sam Russell

https://www.boards.ie/discussion/comment/120866444#Comment_120866444

Absolutely - workers suffer from inflation - always.

Businesses appear to be able to add a bit for themselves, one way or another.

Wanderer78

https://www.boards.ie/discussion/comment/120866444#Comment_120866444

...if only life was that simply, yes people can move jobs, but sometimes that means retraining, along side some time on the dole, in order to make the change happen. then of course what happens to those business owners, and their own personal situation, their own debts, their critical needs, property etc??? if you default on your debt obligations, what happens then, how do you start all over again?

margins for many, if not most sme's are probably very small, and its always important to remember, most are in fact employed by these sme's, squeeze these businesses too much, and you ll know all about it fairly quickly!

most of the major profiteers in this game is more than likely with the larger businesses/corporations, but we re still deeply unwilling to chase these profits, and tax appropriately.....

Geuze

https://www.boards.ie/discussion/comment/120866444#Comment_120866444

This isn't happening.

The post-COVID recovery has allowed many firms to increase prices faster than their input costs have risen.

As a result, profit margins have increased.

Unflushable Turd

https://www.boards.ie/discussion/comment/120801111#Comment_120801111

Open to correction, but it may even be part of EU/government procurement rules, so completely unavoidable for state bodies even if it wasn't in the contract.

Seth Brundle

https://www.boards.ie/discussion/comment/120870610#Comment_120870610

There have been various events which have led to an increase in costs since Covid, most notably the increase in the cost of oil and certain foodstuffs (e.g. grain) as a result of the Russian invasion.

What you are claiming is that it is down to price gouging but aren't supplying any evidence of this.

I know that my own company have seen various costs increase (both for energy and raw materials) and thus have had to increase theirs. However, I can see that there is no gouging happening.

Geuze

https://www.boards.ie/discussion/comment/120871049#Comment_120871049

The ECB have repeatedly stated that profit margins have widened.

https://www.ecb.europa.eu/press/blog/date/2023/html/ecb.blog.230330~00e522ecb5.en.html

The red slice below shows the contribution of higher profits to inflation:

Geuze

Profits have surged during the last 18 months:

Geuze

Here are some of the sectors seeing large increases in profit:

Geuze

During 2022, two-thirds of the price inflation was due to rising profits:

https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230627~b8694e47c8.en.html

Speech by Christine Lagarde

The inflation shock

The euro area economy has faced a series of overlapping inflationary shocks since the end of the pandemic.[1] Since the beginning of 2022, these shocks have both raised the price level by 11% and led to us transferring more than €200 billion to the rest of the world in the form of a terms of trade tax.[2]

In an environment such as this, the natural reaction of every economic agent is to try to pass on these price increases to other actors in the economy. In the euro area, we can identify two distinct phases in this process.

The first phase was led by firms, which reacted to steeply rising input costs by defending their margins and passing on the cost increases to consumers.

The intensity of this reaction was unusual. During previous terms-of-trade shocks in the euro area, firms had tended to absorb rising costs in profit margins, as slower growth made consumers less willing to tolerate price hikes.[3] But the special conditions we experienced last year turned this regularity on its head.

The sheer scale of input cost growth made it harder for consumers to judge whether price hikes were caused by higher costs or higher profits, fuelling a faster and stronger pass-through. At the same time, pent-up demand in reopening sectors, excess savings, expansionary policies and supply restrictions brought on by bottlenecks gave firms more scope to test consumer demand with higher prices.

For this reason, unit profits contributed around two-thirds to domestic inflation[4] in 2022, whereas in the previous 20 years their average contribution had been around one-third.[5] This in turn led to the shocks feeding into inflation much more quickly and forcefully than in the past.

This first phase is however now starting to wane.

Largely thanks to lower energy prices, year-on-year producer price inflation has already dropped by 42 percentage points from its peak last summer. And while this is taking time to feed through to prices more generally, it is partly being reflected in a broad-based decline in headline inflation and a levelling off in some measures of underlying inflation – especially exclusion-based measures and those that capture the persistent effects of energy on economy-wide prices.

At the same time, high inflation has eaten into domestic demand, which contracted by 2% over the last two quarters[6], and the consumption impulse created by excess savings is fading.[7] The early effects of our policy tightening are also becoming visible, especially in sectors like manufacturing and construction that are more sensitive to interest rate changes.

Faced with this combination – falling input costs and dwindling demand – we saw unit profit growth slow markedly in most sectors in the first quarter of this year.

Geuze

See the huge growth in profits in Ireland during 2022:

Geuze

https://www.boards.ie/discussion/comment/120871049#Comment_120871049

I don't know what you mean by "price gouging".

I am simply stating that in many sectors, profit margins have widened since COVID ended, during the last 18 months.

Firms have passed on price increases greater than their costs have risen.

One example: Dalata are making a 25% net profit margin (not gross, net!!)

zg3409

https://www.boards.ie/discussion/comment/120794437#Comment_120794437

Re 48 mobile network, used to be called 48 months and was in theory only open to those aged 18 and for the 4 following years, hence 48 months. It was rebranded 48 later.

In terms of monthly and 13 weeks they rolled back that price increase, so it's the same price as it was before. The sneaky thing is if you never use your phone they get monthly money from you while if it was credit you might get 2 months out of it.

https://www.boards.ie/discussion/comment/120871097#Comment_120871097

If your business has been shut down for two years and you make a larger than normal profit the 3rd year, could you say that the business is really up money?

Also, everyone else's incomes have risen lately, why shouldn't a business and their shareholders see their income rise? They suffer the same loss of purchasing power as everyone else has.

You think your income should raise but a business and their shareholder's should not?

blanch152

https://www.boards.ie/discussion/comment/120870610#Comment_120870610

And that is wrong, and bad for society.