Interest rates start to bite. House prices, obviously, but also in some unexpected places. UK water companies just one example - plenty of others.
Does the IMF really think corporate profits are responsible for inflation?
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Comments on the water company lack of investment and disproportional dividends caused an emotional response when I heard it. I was considering that there should be some sort of governance on those industries that were privatised to stop such a rip off of the tax paying return general public. I thought of electricity gas telephone as essential every day utilities then petrol diesel were also in that grouping. If governments can charge extra tax on oil company excessive profits why not same for all utility companies that might address price gouging and limit inflation somewhat.
Martin Murphy
Really interesting again lads.
Profit margins are usually targeted in the pricing basis by setting a percentage of the costs. Insofar as the costs have inflated then the unchanged percentage margin automatically inflated with it. Is that practical reality of how prices are generally set a counter to the popular narrative of price gouging? To keep the monetary amounts of profit margins unchanged we need to see the percentages (like return on capital, IRR, etc.) actually reduce.
If we do think there is price gouging going on and the solution is business cutting their excessive margins, then what does that say about the job that Margrethe Vestager has done? Why was she getting side tracked into the Apple tax dispute while she presided over this endemic lack of competition that’s allowing the hoarding of excessive profit margins by price gougers?
On the interest rate lags, I think Chris is entirely right. Albeit I don’t have much to back it up other than a hunch. But we saw the tidal wave of rapid house price rises from the era of zero interest rates and QE and it will take a lot to reverse that. The effect of recent rises I suspect will equally take time to feed through.
One thing to watch out for is what the Irish central bank does. I doubt they will want a sharp fall in houses prices in ireland and I suspect they will loosen their lending rules to dampen any sudden decline should it emerge.