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Is greed driving inflation?

Prices are rising across the board.

Inflation has already passed the six percent mark and continues to climb.

The Reserve Bank has responded by hiking the OCR to one percent, a rise of a full half percent.

Food prices are up. Prices for construction materials are up. Petrol prices are up. Everything is costing more and harder to get. We're told that scarcity of supply and higher input costs are the reasons for this.

Yet it seems that quite a few companies are making record profits.

How the hell can this be?

It doesn't take much searching to find a raft of Kiwi companies that are posting unbelievable increases in their bottom lines despite minimal increases in turn-over.

Steel & Tube posted a three-fold hike in profits to $14m from $4m, even though revenue only climbed from $226m to $282m.

Spark's Net Profit rose 20 percent even though revenues were only up by 5 percent.

Mercury Energy posted a massive profit hike to $427m for the last six months of 2021, versus just $130m for the same period in 2020. This profit hike comes despite revenues only increasing from $873m to $944m in the same time-periods.

I could go on and on but everywhere you look it seems that we have companies making vastly greater profits from only marginally increased turnover.

Clearly that means that margins have skyrocketed -- driven by the old "supply and demand" mechanism for price-setting.

In essence, it appears that since supply is short, many companies are just hiking prices "because they can". Instead of prices being set using a "cost plus" formula, it's simply "what the market will bear".

This must surely be one of the underlying drivers of the inflation we're now seeing -- and that's bad, very bad.

Is this just plain and simple greed? Or is it simply good business to try and extract the maximum profit at all times?

What this means is that the rich (holding all those shares in these companies) will be getting richer while the poor (who are consumers of these goods and services, being forced to pay highly inflated prices), will get poorer.

The government doesn't mind of course because it benefits by not losing out on GST or taxes on those corporate profits. Whilst all governments claim to be dedicated to improving the plight of the poor, the reality is that they're really only interested in perserving their own interests -- that's just human nature.

So where to from here?

Well those who lived through the 1980s will know what's coming... and it's not pretty.

Grab a seat and pass the popcorn!

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