Sellers' inflation

Businesses are using the recent ban on credit card surcharges as “cover” to pass along much larger price increases to customers, experts say, as cafes and restaurants struggle to cope with climbing costs and rising interest rates.

Credit card surcharges, typically worth about 1.5% of the transaction, were banned from 1 October, as part of a Reserve Bank-led reform aimed at improving transparency for customers and, ultimately, lowering bank fees.

Small Flat White, an online coffee price tracker, has reported that 17% of cafes have increased their prices since the start of the surcharge ban.

Of those who raised coffee prices, the average increase was 50c, or more than 10%, according to the survey of more than 1,500 cafes.

That is multiples of the typical 1.5% card surcharge fee.

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Wes Lambert, chief executive of the Australian Restaurant & Cafe Association, said business costs were rising rapidly while coffee prices in Australia were among the lowest in the world.

Lambert said businesses changed their prices for many reasons, and that the surcharge ban could have been the impetus for company owners to build up the courage to pass on costs to customers.

“Maybe this is the catalyst that has caused cafes and restaurateurs around the country to wake up.”

Lambert said restaurants were blaming the need for price rises on higher produce costs, steep rents and recent adjustments to junior pay rates and awards.

Many business owners are also affected by the four interest rate rises in 2026, which have driven up repayments on variable-rate loans and equipment financing.

“It should be no surprise that in a high inflation, high interest rate environment that businesses are going to raise their prices,” he said.

The "little fish" in sellers' inflation:

The concept of an economic termite is the cousin to Cory Doctorow’s ‘enshittification’ or Yves Smith’s ‘crapification,’ terms that describe how a platform gradually degrades the quality of its service as it gains market power and gets pushed to extract cash by financiers. Economic termites describes where these same forces get into the mostly unseen business foundations of our society and profiteer.

These termites are in the infrastructure or guts of business, like recruiting services, construction equipment or software, the industrial gasses that go into chemicals and electronics, and so forth. It’s the stuff you don’t see that makes our world turn, there’s fortunes to be made, and bottlenecks to foster.

They also explain a dynamic we all face, a profound wariness in our society, a sense that stuff just costs more and is more difficult, for no discernible reason. Added up, these end up sapping our faith in the American system, because they make what seem like simple problems become not just unsolvable, but not even capable of being diagnosed. In this issue, I’ll cover some of the companies you don’t realize are gnawing at the foundation of our society - Verisign, Autodesk, Linde, Assa Abloy, Gracenote, and LinkedIn. And yes, there are legal tools to address them. But first we have to realize that these bottlenecks are everywhere. 

In any big trial that attracts public interest, a defendant can hope to draw on public sympathy. Except in this case.

In 2024 the social licence of the big supermarkets is utterly broken — their reputations befouled, their brands synonymous with impersonal corporate rapacity. This is an awful time for them to be attempting to mount a defence to a major charge.

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I’m going to share a quote from Chief Justice of the High Court Stephen Gageler, one of Australia’s senior jurists, that ACCC boss Cass-Gottlieb recently highlighted in a speech. It talks about the definition of “unconscionable conduct” and points out that what is unconscionable must depend on society’s values.

“For a court to pronounce conduct unconscionable is for the court to denounce that conduct as offensive to conscience informed by a sense of what is right and proper according to values that can be recognised by the courts to prevail with contemporary Australian society,” she quoted him.

Contemporary Australian society is not interested in giving the supermarkets an easy pass. In this case a tiny fine will not satisfy the public. The customers of Woolworths and Coles include Australia’s most vulnerable people.

It's also worth remembering that supermarket employees include Australia's most vulnerable people.

The dominant view of inflation holds that it is macroeconomic in origin and must always be tackled with macroeconomic tightening. In contrast, we argue that the US COVID-19 inflation is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices. Such firms are price makers, but they only engage in price hikes if they expect their competitors to do the same. This requires an implicit agreement which can be coordinated by sector-wide cost shocks and supply bottlenecks. We review the long-standing literature on price-setting in concentrated markets and survey earnings calls and compile firm-level data to derive a three-stage heuristic of the inflationary process: (1) Rising prices in systemically significant upstream sectors due to commodity market dynamics or bottlenecks create windfall profits and provide an impulse for further price hikes. (2) To protect profit margins from rising costs, downstream sectors propagate, or in cases of temporary monopolies due to bottlenecks, amplify price pressures. (3) Labor responds by trying to fend off real wage declines in the conflict stage. We argue that such sellers’ inflation generates a general price rise which may be transitory, but can also lead to self-sustaining inflationary spirals under certain conditions. Policy should aim to contain price hikes at the impulse stage to prevent inflation from the onset.