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Spud desperately wriggles

Now we know that there is no increase in profit rate.

And we know wages are lagging behind inflation whilst raw material prices are stabilising.

So, given that the number of cost inputs into a corporate income statement are limited in number, what can be causing the increases?

Might it just be interest costs, as I suggested recently?

If, as companies rationally expect given Bank of England commentary, these interest costs are going to keep rising, and most of the UK’s largest companies are by far the most leveraged (i.e. they have a greater degree of borrowing than average, and so borrowing cost), are they pricing that interest rate rise into their product pricing to maintain profits, and as a result is it possible that the Bank of England itself might now be the biggest driver of inflation in the UK? I think so.

The Bank will dismiss this, saying that in competitive markets companies could not pass this interest rate cost on to consumers. That is what their theories say. But their theories ignore the fact that most larger companies in the UK, who dominate the price setting agenda, have monopolistic characteristics and so of course they can do this.

I am not saying that my hypothesis is proven. I am saying that it is plausible.

No, it’s still ignorant. Because if companies had monopoly and thus pricing power then they would use it to increase profit rates. Which they ain’t – therefore they don’t.

10 thoughts on “Spud desperately wriggles”

  1. Given that he produces no examples of the firms acting in the way he suggests, I suggest any examiner would just give 0 points to this answer

  2. Diogenes

    As Spud has never taken an exam in his life then I’m not sure that would faze him…..

  3. Bloke in North Dorset

    He always stops at the hypothesis stage and never goes to to produce a testable theory and then obtain to the data to test his theory. Do we think he’s even heard of the scientific process?

  4. Dennis, The Sigmund Freud of Westerville

    We assume Richard Murphy is empty-headed. I think this is a mistaken. It seems obvious that his head is being filled, more or less continuously, with words. Some he understands (such as “a”, “the” and “I”) and others he doesn’t understand (take your pick). It seems equally obvious that the sheer volume of this build up of words creates pressure that makes his head hurt. Thus, on a daily basis, a certain number of words must be released. They don’t need to be in any order, or make sense, but they do have to go, to make room for newer words. What is unfortunate is that he has chosen to put those words into a blog, rather than, say, talk to his bathroom mirror for an hour and a half.

  5. “The Bank will dismiss this, saying that in competitive markets companies could not pass this interest rate cost on to consumers. ”

    So no landlord has been forced to put rents up because interest costs have risen then?

    In a market where most of the participants have a cost base that includes X, if X rises in price then the price of their output will rise as well, regardless of how competitive the market is. In fact the more competitive the market the less ‘fat’ there will be in the system for companies to absorb any of the cost rise out of their own profits. They will all be forced to put prices up, pretty much in lockstep. The alternative is to go broke.

  6. “ there is no increase in profit rate”

    What does that even mean? Or am I asking the wrong question?

  7. The fact that the overall profit rate has not fallen (but not risen also) suggests that companies have been able to pass on cost rises through higher prices. If they hadn’t then the profit rate would have fallen, as higher costs ate into profits. Which makes sense, the things that have risen in price (energy, wages and interest charges) are pretty universal business costs, everyone uses them. So everyone’s costs have risen and everyone has raised prices to compensate. Competition will continue, just at a higher plane of pricing.

  8. “The Bank will dismiss this, saying that in competitive markets companies could not pass this interest rate cost on to consumers”

    Citation needed. A bit of thought suggests that a general rise in costs will tend to lead to a general rise in prices – yes, there are exceptions for well funded firms who want to build market share. A university post should not be a form of paid education for the teacher

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