The New Zealand business community is in damage control over people beginning to realise inflation is not a result of a mechanistic interaction of two number driven forces; demand and supply. Inflation is often driven by business people trying to maximise profit.
Business NZ commissioned a report on Greedflation – inflation that is driven by profit seeking. Radio New Zealand reported this in an article of 14 June 2023 ‘Inflated company profit margins are not a major factor in driving up prices in New Zealand – report’. The article heading say’s it all – it is a factor but not a major factor in the reports opinion.
When I go to the commissioned report, the article has a link, it has a few significant intellectual flaws or omissions.
It uses the great data held by Statistic’s NZ and it uses their categories of business.
First it leaves out the ‘Financial sector’ category of business because – ‘Financial firms require more complex analysis, as the volume of services consumed is not conceptually the same, which is outside the scope of this paper.’ (Under heading 1. Profit-driven inflation approach).
But leaving it out does not leave out greedflation. We all know that the banks in New Zealand are making record/windfall profits; this has been regularly reported on. We also know that because of our current tax rules encouraging borrowing through interest deductibility, and the difficulties of raising capital in New Zealand, our businesses do a lot of borrowing. So the greedflation of the banks, maximising their profits, is still held within the borrowing costs of the New Zealand business. The report say’ input costs are not greedflation, and assumes greed can only be measured within the profit margin.
Removing the financial sector does not remove the impact of greedflation on New Zealand business and ultimately that means New Zealand consumers are paying for greedflation because businesses simply pass their costs onto consumers. I concede you could argue that inflation is not a direct fault of the New Zealand business; but it does not remove the fact we are paying for greedflation.
The second major omission is the report ignores the structure/makeup of the New Zealand business environment; it is dominated by franchises, the most obvious are Starbucks/MacDonalds/KFC etc
Many services for these franchises come from overseas, e.g advertising, management support, input sourcing for the products sold, loans etc These are input costs to the franchises. Those costs are one of the main ways profits are taken out of the businesses. But theses costs are wide open to greedflation. In fact an article in The New Statesmen mentioned Starbucks as a business that was making windfall profits, along with a host of others. Because the inputs cost are wide open to greedflation you can’t successfully say, as this report tries to; that the input costs are just costs and therefore not increased by greedflation.
A third factor is the report uses averages of profit margins from 2017 to 2022 to show pre and post covid profit margins. Averages – there are hundreds of business in New Zealand, many are franchises (I just explained how profits are stripped out), that are lean and hard working. These small businesses have relatively low levels of profitability. There numbers will pull down the average for the few central owner companies who could well be undertaking greedflation but the lack of granularity in this report means we simply can’t see the greedflation on this level of data.
Fourthly, Figure 4 in the report takes the ‘rise in prices’ over the period 2019 to 2022, and splits that rise into three categories; Inputs, Labour, Profits; and says how much each category contributed to that rise. For example –
- Transport, Postal and Warehousing had a 25% increase in price over the period. Of that 25% it says:
- Input costs represent 59% of the increase, (rounded)
- Labour represents 17% (rounded)
- Profit represents 23% of the increase. (Rounded)
But of course Labour and Inputs are being pushed up by externals costs. Profit is simply what is left over after costs. So the table is saying firms in this sector, and most other sectors, are undertaking greedflation. Over the period they are increasing their profit margins and passing this onto customers. This sits at odds to Figure 2 where their message is ‘Profit Margins have been lower than usual since covid’.
This report simply does not have the granularity of data to make the assertion it does that greedflation is not in New Zealand. This report should never have got past the journalist or the editor, (let alone the people in Business NZ) . I can see no 4th estate push back.
p.s. it was suggested to me that this report should be printed out and stored by the toilet. Don’t do this, you’ll never get the smell off your hands.
Stephen – Good article…so the big question is how will the NZ Government response?
The same way they responded to Woolworth’s buying out all their competitors (except one). Or how they responded to Murdoch, Dunn, Packer/Fairfax & Smith/Fraser having their own absolute monopolies in every single daily newspaper market (now down to just three companies). Or how they responded to news this year that there was now a virtual monopoly in the full-line department store industry. (Can anyone even remember the last time they broke up a company?)
But that is only the issue of monopoly pricing, which can only rise to a certain point in real terms before it crushes demand. Both parties have no solution to the unpayable debt other than continuous currency devaluation — inflating the debt away to avoid a depressionary collapse. That is the only way that all prices can rise continuously and simultaneously.
Kristoff R – Brilliant
Labour will respond by doing nothing.
No Comment – Spot on!
Probably a good thing.
No Comment that is Chippies modus operandi don’t do anything.
Evidenced by his time as a Cabinet Minister and Prime Minister.
Why did National create Greedflation in the first instance.
This is a woke concept to describe profit. Go ask Luxon and Willis as the king and queen of woke to explain it. On you bike, mate.
And that was probably the most woke answer. On ya bike, bro, mate.
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Many businesses are teetering on the brink of collapse and we have ridiculous statements using a new term greedflation.
Business acumen on this site is missing.
Most comments display commercial ignorance in the extreme.
( NSC an example.)
Idiocy by Bob again and again and again.
Christchurch business is back to pre covid days.
Just stop with your ridiculous non evidence based hard right wing rhetoric. You are boring and it is quite clearly evident you wouldn’t know commerce if you walked into a bank.
You are intellectually impaired Bob. I suggest you seek help.
NSC absurdity is your strong suit.
We have a Labour Government so ask Chippy.
Silly immature and ignorant Bob. Do you seriously believe people give a fuck about the nonsense you espouse? Your severe lack of intellect is noted.
“Oh look a fire, should we do something about it?”
Labour “No, let it burn, National started it”
“Oh look a fire, let it simmer, we can blame Labour at a later date”
No Greedflation in New Zealand,economists agree.
NSC given your ignorance of basic economics your views are of no purpose.
Bob, you continue to embarrass yourself with your total ignorance of basic economics and your views are insignificant due to your irrational posts.
My understanding of economics is excellent.
Not embarrassed,proud.
Funny NSC you make me smile,thank you.
As an aside are you bert,you have a similar style of expression?
100% correct.
We need to hold government to account. They can pull the levers.
There are those who argue that businesses should act altruistically. Altruism is a choice for individuals and individual businesses, many do much of this stuff. But ultimately the environment in which individuals and business operate is shaped by government policy.
Those who argue that a low wage economy can be changed if businesses just act more altruistically are just creating a smoke screen for governments to hide behind.
Is there any evidence of ‘greedflation’ beyond left-wing memes? Genuine question.
Depends how much government support there is for private sector spending habits.
This is a new word to demonise profit.
Not difficult to see the link to Marxism.
It’s not difficult to see that sugar, tobacco, and tax evasion is the work of the devil.
Your are right, it is not. So why the vacuum?
Waiting for altruism to kick in? Any time now……….. yeah, right.
You conflate greed with normal profit Johan that’s capitalism.
I conflate nothing.
But you are right that people are conflating greed and profit to support their own ideology.
Read Ian Taylor’s open letter to Chloe, it presents a very good example.
Actually you conflate everything. Profit/ greed over people, capitalism at its best
.
Capitalism has pulled more people out of poverty than any other system in history.
So what are you on about?
Proof Bob or what are you really about.
Despite its ubiquity, many economists criticise aspects of capitalism and point out is many flaws and problems. In short, capitalism can cause – inequality, market failure, damage to the environment, short-termism, excess materialism and boom and bust economic cycles.
In short shut the fuck up Bob you are clueless.
So what are you on about?
Try reading what economists are saying.
Many economists are arguing profit margins are currently at a low level.
Greedflation is a manufactured word to suit an argument.t
and many economists are wrong bob the lefty…it’s not even an art never mind a science…also do you expect a stooge from infometrics to say anything differe….really? oh c’mon
/
No Ada in fact some economists are saying profit margins at the moment are historically low.
well lets face it bob the lefty that’s a lie
What another Bob the first lie? No, say it isn’t so!
Not actually gagarin look it up you will find I’m correct.
I did you’re wrong so yes you are a liar, but something we all knew.
ODT Saturday edition.
Obviously you didn’t bert otherwise you would agree with me.
go to your local supermarket ada….make a list go again next week and post the results….if suppliers aren’t being paid more, it’s larger margins ie—greedflation
It seems to me that most journalists (with exceptions) follow the prevailing economic orthodoxy “on the back of” the standard tertiary education curriculum and the “spaces” they inhabit.
Most times the rhubarb goes unchallenged.
Hopefully @ Stephen, you’ll have also provided the RNZ bizzniss “team” (Giles, Nona and the cadets) with your analysis without having to face any “headwinds” so that we can all expect a “soft landing” in terms of balance and a reasonable critique of the journalists claims – “in this space, going forward”
Easy solution Stephen.
Mortgage your house up to the hilt (if you have one) and set up a company to compete against these evil entities. If there’s such huge profits you could cut the margins and you’ll show them all how it’s done.
You could also pay you’re staff $100 an hour and also be the bastion of the high wage economy.
Ian Taylor’s open letter to Chloe is such a good read.
It should be mandatory to read this letter before commenting.
Taylor is one man’s opinion. I would have thought you of all people would have been open to multiple opinions given the history of your own country.
Why should Taylor’s opinion outweigh Minto’s.
Why are you canceling others based on not reading Johan?
It would be like saying, you don’t offer anything sensible Johan so shut the fuck up until you can.
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Great comment.
not only will weak corporate neo -lib govts allow it they will support it….the ideal for them is a monopoly in all sectors(but state ownership is bad—go figure given the proven inefficiency of private business)
see Rollerball the original NOT the remake for the neo-lib wet dream
The clever use of percentages as fixed standards leads to unsatisfactory outcomes. They should be used as indicators showing proportion and denoting change.
Example :
Fixed GST at 15% on a purchase of $100 = $15.
If the price goes up sharply because of inflation, supply chain delivery problems, growing demand, rising resource costs etc to $150 – GST is then $22.50.
It’s the same article at a higher price but the same GST percentage has taken an extra $7.50 in tax.
This sliding effect from a set percentage is adding inflationary pressure on consumers, and when people are struggling, and impoverished further from high prices, is an unfair tax burden. The wide use of percentages as rigid measures, is pernicious and inappropriate.
The clever use of percentages as fixed standards leads to unsatisfactory outcomes. They should be used as indicators showing proportion and denoting change.
Example :
Fixed GST at 15% on a purchase of $100 = $15.
If the price goes up sharply because of inflation, supply chain delivery problems, growing demand, rising resource costs etc to $150 – GST is then $22.50.
It’s the same article at a higher price but the same GST percentage has taken an extra $7.50 in tax.
This sliding effect from a set percentage is adding inflationary pressure on consumers, and when people are struggling, and impoverished further from high prices, is an unfair tax burden. The wide use of percentages as rigid measures, is pernicious and inappropriate.
What can be done immediately the GST should be dropped back to 10% with 2.5% paid by government to Councils within set geographical zones from whence the GST has come. Feeding money spent back to the locals for basic infrastructure use, not stadiums or flash airports, but to provide basics that support the people and their businesses.
That would be good for now and a purchase tax on new goods replace the ubiquitious GST. so those trying to buy food, repair say, their goods, or their health etc aren’t burdened by greedy Dr Dolittles in government.
Company tax is paid on the company’s profit, so Government is a bit of a silent partner as it is gaining from the supposed higher profits.
Extra revenue collected at 28% of the greedflation’s impact is a strong political dis-incentive to act against it.
But Ada this Government works to the law of Murphy.
They could drop taxes and also their salaries hah hah- just a bit to show solidarity. But that would set a precedent.
If only we had a majority government composed of Socialist Justice Warriors, surely that will fix all problems.
Keep praying RB – sending up your vaguely hopeful nostrums.
nobody is suggesting it would bratty again you storm an undefended hill…but will the nats failed 80s policies be better….tip see einstein on repeating experiments that fail
They would spend half their first term arguing over the definition of woman.
and the second term trying to define ‘woke’ belle
Ever higher prices will not last for much more than another year or two as the world’s reopened borders will not enable the demand and supply equilibrium to be skewed too much, as it was under the Covid-19 era.
oh that’s a relife very comforting danny
Hi Stephen not sure if you saw this but I think its relevant to your post.
” The international drivers behind the country’s soaring food prices may have finally peaked, Foodstuffs says.”
” But before we expect to see prices start to tumble, the grocery retailer warned pressures back in New Zealand continue to fuel cost increases. ”
” Foodstuffs NZ managing director Chris Quin said global indicators are pointing to some of the main drivers of food price inflation reaching its peak. ”
” “While food price inflation remains high, we’re hopeful we’ve seen the crest of the wave of record cost increases from suppliers that we’ve been experiencing over the last 18 months,” Quin said. ”
” But when it comes to cost increases there are drivers fuelling it at home, Quin said.”
” These cost pressures include the Government raising New Zealand’s minimum wage in April and bad weather affecting crops, including tomatoes, leafy greens and pumpkins. ”
I get the crops argument but the minimum wage going up !
Nothing as you would expect regarding the massive profits they are making regardless of external factors whether we are experiencing the other effects or not. Like the banks and finance companies with the interest rate climbing their profits increase while severe austerity is applied more often than not to our most vulnerable communities with no one representing or standing up against this onslaught and their protection in this financial tax haven in the South Pacific.
Another Kiwi myth is how we look out for the underdog and expect everyone to have a ” fair go ” but in reality that is not how our economy or our political system delivers.
The great crises we are currently enduring are only felt by our most vulnerable , hard working New Zealanders who don’t have the power and financial protection that is afforded to the financially independent and donate to keep it from so many in New Zealand.
Hard working New Zealanders that the Labour Government have taken for granted and walked all over.
This Labour Government does not represent workers,it’s made their lives more miserable.
They have to go.
You are an embarrassment. Thankfully Labour are in charge and you are a nobody. I suggest you go and save us more of your embarrassing posts. We are truly fortunate to have Labour leading the country. Your opinion is clearly of no value.
Thanks yet again for copying my style of expression.
Imitation the ultimate flattery,thank you.
Quite happy just being Bob.
bob the lefty how much do labour pay a troll? put in for a rise, everytime you post you allow others to destroy rightwing positions….you are ‘black propaganda’ at it’s finest