ELI5. How are large companies in the UK making record profits year on year, when inflation is high and cost of raw materials is high?

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Surely if the cost of materials is high and the cost to the consumer is high, profit should be stable, proportional and parallel with the cost to the consumer? But it seems like fuel, energy and supermarkets know something we don’t. Wtf is going on? If they are making such huge profits, and keeping costs high to maintain these, aren’t they just driving inflation and maintaining it at current levels?

In: Economics

3 Answers

Anonymous 0 Comments

The articles you hear are talking about profits in terms of their nominal value.

In other words, they’re making “record profits” but not adjusted for inflation. In periods of high inflation, you’ll get “record profits”.

Anonymous 0 Comments

All they’re doing is charging even more than would be proportional to the increase in raw materials. That way nobody can say “you’re raising the price for no reason”. I’ll use gasoline as an example. The price of raw oil has gone up very slightly since the invasion of Ukraine however companies have used it as an excuse to double the price of it. They say the price has gone up 2% for oil so we will charge 20% more for gas.

Anonymous 0 Comments

During inflation the real value of the currency declines sharply so it takes more of it than ever before just to keep the actual operations of the company at the same level.