Sellers' inflation

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.