So, what about interest? The Bank of England is putting up rates as fast as it can and is determined to leave rates as high as possible. Its obvious goal is to create long term positive real interest rates for the first time since pre-2008. Suppose rational businesses have noticed this and are putting up their costs to cover these anticipated interest cost increases, which are a major part of their expenditure? Interest costs account for 30% of the income of water companies, for example, although they are a bit extreme. For business to do this would be entirely rational.
For businesses to be able to put up their prices means they have pricing power. Capitalists are greeddy so if they have the ability to put up their prices then they will put up their prices, whatever their cost base. That is, if this was possible then prices would already have risen whatever happens to interest rates.
That is, also, Spudnomics is bollocks. But we knew that.
“That is, if this was possible then prices would already have risen whatever happens to interest rates.”
Nonsense. If that was true prices would never rise due to an external shock to the economy. If the cost base rises because of a cost that affects all those in the marketplace, then prices will rise across the board, regardless of how competitive the market is. For example, when fuel prices go up then the cost of running a lorry for a day rises for every single haulage firm, so they all put up their rates.
So if interest rates rise and that causes a rise in costs across the board then prices will rise, because they have to, the company will go bust if it keeps them the same. And if the product is something that people need (like food) then they’ll just have to pay the higher prices.
And its also true that not all market participants try to maximise profits all the time. Many people renting out property for example take below market rents, for many differing personal reasons.
The Bank of England is putting up rates as fast as it can and is determined to leave rates as high as possible.
Yes, those 0.25% increases really show a desperate desire to raise rates as fast possible…
Cherny @ 1.02, they are raising them as fast as the host can cope with without killing the host…….
Jim – spud’s argument is that price increases are due to corporate greed, not supply-chain (and production) cost pressure. It fails as Tim described. If producers fail to maximize profits as you describe, Spud’s argument also fails (quelle surprise). In the example you cite – of landlords accepting lower rents than they could otherwise obtain – I suspect they are maximizing long-term profit by reducing turnover and selecting for higher-quality tenants who will not damage the premises.
Isthmi’s a first for Spud? We all know he’s ignorant of 2nd and higher effects but now he’s not even considering first order effects.
A long term paying, non-smoking, no-pet, not-a-wierdo tenant is gold for a landlord and gets rewarded accordingly with below market rent increases to keep them in situ. Turnover is very expensive and to be avoided if you prefer to make a profit.
@ BiK
When I first moved to London, I had a genial Irish landlord and no rent increases in the four years I lived there. Most of the other guys who were there when I moved in were still there when I left (because the commuting was killing me).
“ Isthmi’” grrrrr
Is this – obvs
As I have said before, the primary causes of inflation
– Net Zero
– COVID lockdowns
– MMT and unlimited QE
– Unlimited migration
– Hugely inefficient and overmanned and overfunded public sector with millions in non- jobs
– Ukraine War
Are (possibly excepting the last one) all supported to the hilt by Murphy so he is directly responsible for the situation we are in. He knows that and can feel the noose around his neck.
“spud’s argument is that price increases are due to corporate greed, not supply-chain (and production) cost pressure.”
That may be his argument, but Tim chose to highlight the above quote which specifically says that companies are hiking prices in response to rising debt interest costs. Which is entirely logical. If your business costs are rising such that you are becoming loss making one of the things you can do is try to raise prices. The alternative is going bust. Thats exactly whats happening to landlords right now – their mortgage costs are rising, so they are having to put rents up.
Spud is wrong about many things, the vast majority in fact, but that does not mean his every utterance is wrong and can be laughed at with actually thinking about it.