From my perspective, you're saying the same thing as the parent: both prices and margins have gone up. Then you're stating the definition of inflation.

Parent's comment was (implicitly) about 50% of this inflation being avoidable and thus surprising, because margins didn't necessarily have to go up to keep business going. It was just a seized opportunity. If you can show that margins unavoidably always go up during inflation because of some fundamental mechanism, then that would be a refutal of the parent argument.

Margins almost always increase anyway.

I'm not sure anybody fully understands the mechanism (for the most studied phenomenon of economics, inflation is quite badly understood), but that doesn't change the fact.

Anyway, if you run the Keynes model for macroeconomics, the average margin increases very naturally when the money supply increases. It increases even more if the new money is injected in the economy by well distributed government spending. Still, that's one model we have that kinda works, but it's so full of problems that you can't take its predictions for granted.

Temporarily and in a localized way, yes.

For example, if there's a natural disaster, and the people in power aren't dumb, they'll let prices float instead of putting caps in place, and everyone will be incentivised to rent big trucks full of water bottles and sell it for 20-50x the normal price. For the affected people it makes sense because now they can drink water, and if the prices were controlled nobody would make the drive. Eventually enough people do the drive or the disaster passes and prices normalize.

At the moment it's hard to explain what is happening but it might be more complex than just "nothing to see here". I've come to realize that reality is more nuanced than Milton Friedman made it out to be (and he did too later in life).

> if there's a natural disaster, and the people in power aren't dumb, they'll let prices float instead of putting caps in place

I think most states that experience natural disasters have price gouging laws that make it illegal to raise prices, during a declared emergency, beyond the level required by increased costs.

Or at least I know Louisiana[1] and California[2] do.

And here in Louisiana we've had a lot of disasters and it generally works (sometimes gouging still happens).

[1] https://legis.la.gov/legis/Law.aspx?d=85680

[2] https://leginfo.legislature.ca.gov/faces/codes_displaySectio...

"Works" in the sense that it keeps prices from going to high. Fails in that it prevents people from preparing adequately for forseeable disasters and bringing in more of the things people need in a disaster.

In my opinion, disasters that have some level of predictability (hurricanes are the best example) shouldn't have price gouging laws. If you were allowed to raise your prices arbitrarily high, and you knew a hurricane was coming, what would you do? Bring in as many of the goods as you thought you could get higher prices for as you could. This results in an equilibrium where lots more water, food, batteries, etc. gets brought in, prices rise only somewhat, and no law is necessary.

Now, I agree that for disasters that aren't forseeable (like earthquakes), you lose the signalling value, so I'm more amenable to it.

I think implying people aren't able to adequately prepare for hurricanes in Louisiana is begging the question. I've lived here for almost 40 years, through a lot of hurricanes, and that is not my experience.

Sure, some shelves might be bare the day before the storm but that doesn't mean people aren't prepared, that they aren't able to get the things they need, or that the current method does not work.

And when the power is out for a week+ for a whole region (goes beyond the supplies urban locals typically prepare) then government uses the national guard to hand out MREs and/or bottled water in commercial parking lots. This is very rare.

> some shelves might be bare the day before the storm but that doesn't mean people aren't prepared

I remember a study on New York following Hurricane Sandy. Fuel was out. Drugs were supplied. Because nobody was incentivised to bring in extra fuel before the hurricane hit; there was no margin to incentivise it. But there was an incentive to bring in drugs, because dealers could make a killing selling at a premium.

Price-gouging laws are the price of keeping the peace with a population illiterate in basic economics. (And in any case, there is always a black market in play.)

Gas stations can't pump if they don't have power. That's generally why there's a lack of fuel.

Sometimes they have backup power or power companies prioritize them. In the south, local media will help notify which gas stations are operable. More fuel won't solve that problem.

For Sandy they had more issues than just pumps without power. 40% of their supply was reduced before the storm even hit from shutting down refineries. And then the refineries suffered damage. Storage tanks were damaged. Pipelines were inoperative. They couldn't fill delivery trucks. [1][2]

For a typical hurricane, why would there even need to be extra fuel over normal supply? In a hurricane people are driving less. They're staying home. The only extra fuel will be from generators and hoarders.

Price increases would probably decrease hoarders but it wouldn't turn refineries back on and magically make more gas.

[1] https://www.preventionweb.net/english/hyogo/gar/2015/en/bgdo... [pdf][page 6]

[2] https://www.nbcnewyork.com/news/local/sandy-storm-anniversar...

> stations can't pump if they don't have power. That's generally why there's a lack of fuel.

They’re a gas station. They’re sitting on a fuel source. Why do you think it isn’t economical to install a generator? (Or even lease one.)

> why would there even need to be extra fuel over normal supply

Emergency vehicles. Trucks bringing supplies for repairs. People checking in on each other. People coming back from evacuation or leaving to find peace of mind. Also returning to normal life.

And it’s not about extra fuel. It’s about maintaining supplies. New shipments aren’t coming in, which means supplies need to be rationed. New shipments come in slower than they would if prices could rise; nobody is incentivised to rush.

> increases would probably decrease hoarders but it wouldn't turn refineries back on and magically make more gas

Emergency shortages are all about distribution, not production. There is plenty of gas in the world in a disaster. It just isn’t making it to disaster victims. (Well, it is. But you have the pay the cab driver cash to pay the guy by Riverside Park for a can at $20/gallon.)

I think it’s a little more complicated than that. I remember fueling up in Chalmette right before Ida, early in the morning, and by the evening or the next day the gas station was out of fuel. Would no price gouging laws have allowed them to inflate the price so much that people couldn’t afford to buy a day early like I did to be able to evacuate?

Government had to provide basic services during a time of emergency and there are regulations in place to stop people taking advantage of vulnerable people.

Sounds good, I'd pay tax money toward it.

> Government had to provide basic services during a time of emergency

There were widespread fuel shortages.

> regulations in place to stop people taking advantage of vulnerable people

There were no fuel shortages for folks who could buy on the black market.

> Sounds good

In a sense, the system works. The part of the population that feels good with these rules sits out of the market. The part that thinks it’s silly has access, in part thanks to the shortages/forced curtailment caused by regulation in the legal market, albeit at a steeper mark-up (plus the inherent risks to black market trading).

I have been through multiple natural disasters in the Houston Texas area over some years and I have seen first hand that these price caps cause shortages resulting in people that need supplies not being able to obtain them. The people wanted price caps in the name of preventing price gouging and the state state obliged: the majority of people get nothing and everyone is happy.

I guess all people in power must be dumb because every county has laws against grifting necessary essentials in a natural disaster.

It’s possible your point does apply to normal price shifts when supply for something like electronics becomes constrained but right now your example detracts from understanding that.

> I guess all people in power must be dumb

Some are smart psycopaths. The issue isn't dumb in power but dumb people voting. People get outraged by price gouging so populists create laws against it. Even though those laws don't make economic sense they make political sense.

Most of the time IMO state agents will just ignore price gouging because they know it is a necessary evil but if the need arises they can always intervene in prices, say they are doing something and save face. But this destroys the economy if done often. It's not black and white.

[delayed]

Yikes. If the people in power are really smart though they’ll protect their constituents against greedy opportunists and fund the water transportation at cost. Maybe even paid for by taxpayers.

> If the people in power are really smart though they’ll protect their constituents

They have no incentive to do so. If they were actual human beings with functioning consciences maybe, but we often see people use the word "smart" to mean "ruthless asshole without a functioning moral compass". Those people assume everyone else would torture their own grandmother for an extra dollar just like they would, and so everyone who's not abusing the system to its fullest extent is just dumber than them. So in fact the people who are likely to be in power, who have absolutely no incentive to protect their constituents, will likely be in on the con as much as they can, and will actually call themselves "smart" for doing so.

Many US states actually have price gouging laws. In the US, during a natural disaster, many places deploy emergency personnel employed by the government (eg national guard) to pass out water and aid. I’d say the US ranks highly among developed nations as “politicians who are assholes due to bad incentives”.

Thankfully not everyone behaves like an economics textbook.

> For the affected people it makes sense because now they can drink water

Only the rich people. It does nothing for everyone else.

Wouldn't Texas and their electric infrastructure and pricing be that defines the reality of price floating while showing people in power are dumb? As showing by the lack of regulation to weather treat your power infrastructure? So cold that the water pumps to cool nuclear power plants freeze? So cold that the natural gas lines freeze? So low in quality that they cannot be connect to the national electric infrastructure to allow for non-price gouging use during national disasters, hot or cold?

Shouldn't it be humanity that takes offense in a natural disaster instead of financial exploitation?

I live somewhere where we have natural disasters and the retail chains all truck in lots of water and just GIVE IT AWAY to the affected residents. Because it's the right thing to do, they have family, friends, coworkers in the same place, because it's great PR?

Why does it cause such higher margins?

Imagine you buy for X, and sell to some supermarket for Y, and they pay you in T time.

Optimum Y is not related to X, but the price when you replace the stock. ( let's say X2 ) When supply has problems, or economy is unpredictable, it is harder to predict X2, so usually your estimation is a bit off.

So you have to have bigger margin to cover for this estimation error. ( assume the worst )

So they increase margin to cover for uncertainty and incorrect estimations. And in case the original estimations were right, the higher profit is just unintended consequence.

Since it's not market optimal, after they note the extra profit, why don't they lower the prices or hire more workforce or expand? Or at least share the windfall with employees indirectly boosting the economy total, including their own position?

(Yes, equilibrium economics is a joke even when law of big numbers is involved.)

The rather soulless economics answer is that the companies want to make the same profit as before the inflation, so they need higher margins on individual sales to make up for the reduction in volume. Since demand doesn't drop, this is a feasible strategy.

That answer doesn't make sense, because surely, companies want to increase their profits regardless of whether inflation is happening or not.

The real answer is that when inflation is happening, it provides an easy excuse for raising prices far beyond the cost of your inputs. Everyone expects prices to go up, so they don't balk at yours going up faster than inflation.

The idea is that the company normally prices their products at the intersection of supply and demand, where there is maximum profit. When supply is artificially constrained, they raise prices to the corresponding spot on the curve. This is not as profitable as before, but it's the new local maximum.

It's one of those simple macro-econ models that sound good, but never play out in real life because humans aren't calculators. The reality is a mix of both, probably more of your explanation.

Supply drops mean price increases. Goods have multiple inputs but don’t see equal increases across the board. Ie rent isn’t going up in a grain shortage.

Critically higher profit margins doesn’t necessarily translate to higher profits because you’re selling fewer goods.

It takes a while for the river of money helicoptered into the economy to spread its inflation out evenly.

That theory only works if people are morons who can't anticipate long expected (price) developments.

Because a lot of companies are using "inflation" as an excuse to raise prices.

Remember, prices generally are a function of the cost the market will bear. If the general public will pay more for something, why not rise the price? If everyone is rising their prices at the same time, you have less pressure to compete on prices.

Because the middle man typically see there an opportunity to extort more money?

From the original article:

> consumer goods companies are not cooperating in efforts to cut the price of thousands of staples despite a fall in the cost of raw materials.