For context – I just saw a post that said for the first time since 2020 McDonald’s hasn’t made as much money or something, and their prices have increased 40% since 2019. – if big companies start losing profit because people chose to not spend their money there because they can’t afford it, Would prices ever go back down?
In: Economics
Prices don’t tend to go back down. It’s actually a bad sign if they do. Instead, wages slowly move upward to match the increased prices. This adjustment just takes time.
Possibly, but if they did it would generally be bad. It’s called deflation
The reason it’s bad is that for one, the cause of deflation is usually a slow down in the economy, so that alone is not great. But, also, if prices start falling then consumers will stop spending, waiting for prices to go down even further. If you know the price of cars or TVs will be lower by a significant amount in a month or six months, you’ll put off buying those things
That delay in spending then speeds up the decline in economic activity, and eventually you get into a really bad (Great Depression) situation
Ideally, there should be a *little* bit of inflation, and that is what the US Federal Reserve (and basically every other central bank in the world) is trying to do–how can they get inflation down to their target 2%, but not tank it where it goes negative.
This little bit of inflation encourages people to invest their money in the economy–start a business, loan it out, buy the thing they want to buy instead of waiting, etc, instead of stuffing it in their mattress and not circulating. This stimulates economic growth
The trick, which we’ve seen the past 4 years, is too much inflation is bad in the other direction in that people can’t afford things, and eventually that will grind the economy to a halt
So, in the end you want a little bit of positive inflation, but not too much, and deflation is generally very bad
Since other people have answered the inflation/deflation part of the question. I’d also like to add that McDonalds is not losing money, their sales declined(1%) for the first time since 2020, but they’re still currently more profitable than they’ve ever been per their last earning call in terms of Earnings per share.
there is no decrease. People are buying at current prices so they’re not going to go down.
pretty straightforward. But people won’t do it for moral reason and wanting to protect American job.
lift oil sanction against russian and venzuela, so upstream oil price come down. This affect both transportation and energy, fertilizer. Oil and natural gas have multiplicative effect
Remove import tariff for Chinese goods. Foreign manufacturer price undercutting American manufacture will prevent domestic maker from raising price or else foreign maker will grab all the market share. This is pretty much the primary reason why inflation was staying low after 08 printing, we export our inflation oversea.
So just think of you’re paying 40% more on rent and grocery in order to fight for urkraine and protect American job.
In a way, it’s a patriotic to pay more, because it’s showing your loyalty can’t be bought. So you just got to reframe paying more for inflation as serving your country without actually joining the army.
Some of McDonald’s competitors are offering a $5 meal deal again. Rally’s has had that and 2 for $3 chicken and fish like they used to.
Eliminate minimum wage, beg OPEC to produce more oil, relax regulations.
Whether the side effects are worth it it’s up to you
What counts as affordable? People are buying food at the current prices presumably, so it’s affordable enough to not lead companies to lower their prices. Also FWIW, wages have grown faster than inflation (though perhaps at least restaurant prices have outpaced wages).
Try not to believe the corporate lies. There are several major companies out there that, according to their tax statements, have been running at small losses for …. decades.
But how is that possible? Well imagine that your family is a large international company.
Your dad is “Family International”, and he lives in a country where he pays little to no tax. These countries are called “tax havens” and they’re do this because this attracts a lot of businesses to a country that has little or nothing to offer businesses normally. The country makes money by charging these businesses fees, rental, etc. and normally does quite well out of this deal.
Your mom is “Family Brazil” and she deals with sourcing the meat and vegetables for all the “Family Burgers” sold by branches all over the world, but these are first sold to “Family International” for nearly cost, so “Family Brazil” actually makes very little money.
You are “Family India”, and your brothers and sisters are in other countries.
Now remember that technically “Family International”, “Family Brazil”, and “Family India” are **completely separate** legally speaking! Sure you’re related, but that doesn’t mean that your dad has to pay your debts, and you don’t have to pay your dad’s debts. You’re separate.
And this is how most international companies are set up. Even if the parent company owns stock in the child companies they’re completely separate legal entities.
So how does the scam work? Well you’re selling “Family Burgers” in India. You have to order your burgers from your Dad at “Family International”, so that cuts heavily into your profits because he’s not cheap and puts a heavy markup on the burgers. But that money is staying in the family so that’s okay, right?
At the end of the year you make an okay profit. Enough to pay your employees, plus a generous payout to your stockholders (and your Dad at “Family International” is your biggest stockholder)… but then one more bill arrives from “Family International”, who holds the copyright on the “Family” name brand. They want you to pay this year’s licensing fee for using the “Family” copyrighted name.
And like magic “Family India” doesn’t make any money that year. In fact you’re running at a small **loss!** Oh no! You qualify for some subsidies and tax rebates from the Indian government, but it isn’t quite enough to keep you in the green. But kindly Dad at “Family International” buys some more stock and your company is stable. Good old Dad!
… and this is how it works. On paper and through the magic of creative book-keeping using international loopholes all the actual profits are funnelled to “Family International” where the company pays zero tax.
Meanwhile all the local companies like “Family India”, “Family England”, “Family Brazil”, etc. are all (at least on paper) running at a loss year after year! And of course they have to raise prices to survive!! But mysteriously no matter how much they raise prices and no matter how many burgers they sell they always end up operating at a loss… yet never close down.
And this is the international shell game these companies play. Food prices will never come down because that would cut into their profits.
Prices will never decrease. If inflation gets to zero, that just means prices aren’t increasing. It would take negative inflation or “deflation” for that to happen. Given how apoplectic the Fed gets when you even mention “deflation” it ain’t gonna happen. We have a $34 trillion debt that needs to be inflated away.
Latest Answers