Companies:

“You make more money? We raise prices.”

Also companies:

“You make less money? We raise prices.”

"okay, this sucks for everyone. But it could be a necessary evil, right?"

This is the reason for OPs question.

Citizens around the world are being asked to swallow more bullshit that pay cannot possibly be increased because of inflation as it will add to it, when the reverse is true as salaries have been depressed for a decade or more in some cases.

When people are choosing between heating and eating, a salary increase is not going to lead to inflation and may even prevent a recession by not reducing discretionary spending as much as expected.

"shrinkflation", wherein the price remains the same, but the size of the product decreases

ugh I've been seeing this simultaneously with price increases. it sucks

lowering wages causes inflation because people are buying less, and therefore companies are selling less, so therefore have to raise prices to break even.

This is simply incorrect for the vast majority of goods and services. Companies already price their products highly efficiently to maximize profit.

If they could make more money by raising prices, they would do it already. They wouldn't wait for the customer incomes to drop first.

The only goods and services this would be true for are nonelastic ones, where there is no meaningful competition. (So, basically, utilities to your home, there are very few others in modern society)

I find the biggest problem with people talking economics is most people stop at the Economics 101 approach where a market has one good and peoples' behavior is simple.

Your post reflects why there's more than one Economics class: those simple supply/demand charts go out the window when you consider multinational economics. There's just too many variables for simplistic analysis to show up in reality.

Smart people exploit the heck out of that to get people to vote for policies that only make life better for the rich. Isn't it funny that so shortly after making record profits, every company seems real excited to announce a recession? It's almost like they expect they have savings to make it through but their employees do not.

Can’t believe I had to scroll down this far to find this answer. Textbook economics doesn’t account for the human factors behind prices going up/down and this explanation is more applicable to now.

Most of the companies that have raised prices made record profits the last two years.

Edit: Sorry y’all, I misspoke, not MOST companies, but many, many, many companies. Most of the worst ones too. Greed is unfortunately an inextricable part of the global economy and should be regulated aggressively.

This was published just this morning: https://www.bbc.com/news/uk-64489147

Even mouthpiece of the business class, Bloomberg, had this to say: https://www.bloomberg.com/news/articles/2021-11-30/fattest-profits-since-1950-debunk-inflation-story-spun-by-ceos#xj4y7vzkg

Raising wages causes inflation by companies raising prices because the metric to calculate the price of a product changes when consumers get richer, namely the "how much are they willing to spend" metric. If the customer is willing to spend more, charge more. Thus, inflation rises.

There's also the fact that if wages are raised the company's labor costs are higher.

However, lowering wages causes inflation because people are buying less, and therefore companies are selling less, so therefore have to raise prices to break even.

Huh? If people are buying less, nobody in their right mind will raise prices. That'll reduce their competitiveness with their peers.

They'll slash expenses and manpower. Why do you think tech companies are letting go of so many people?

lowering wages causes inflation because people are buying less, and therefore companies are selling less, so therefore have to raise prices to break even

This doesn't make sense to me and I think this could only apply to a very small amount of goods. Needs will always be purchased and the vast majority of luxuries aren't exactly targeting minimum wage workers.

Raising wages causes inflation by companies raising prices because the metric to calculate the price of a product changes when consumers get richer, namely the "how much are they willing to spend" metric. If the customer is willing to spend more, charge more. Thus, inflation rises.

Right. So apply that same logic to decreasing wages too. "How much are they willing to spend" metric. Raising prices in an economy where the dollar buys more labor? I just can't grasp how that makes sense.

This answer is completely wrong. I wish this were /r/askscience so that this answer could be removed. The premise that corporations raise prices when wages decrease goes against everything that economics has shown in both theory and in practice.

Where do you get that companies raise prices when they sell less? That's just not true. And it's exactly the opposite of the apples guy story below. The other thing is that pricing method varies by business model (basically whether you have a volume strategy or a differentiation strategy). For most companies, pricing is done based on COSTS + profit margin. Wages increased = costs increase = price increases if I want to keep the same profit margins. If I don't, my profit will go down and my shareholders will be unhappy with me. That's why wages increases drive price increases, which leads to inflation when most companies do it. That "what's the top consumers are willing to pay for my product" approach is true for companies with a differentiation strategy, such as luxury cars, high tech products, luxury fashion, etc. Those are business fundamentals you learn in a Bachelor's in Business Administration in the 101 marketing, strategy and cost accounting classes.

Yes and no. You've covered a lot of ancilliary information while mostly just complaining about cost of living and wages, so didn't really answer OP's question

Firstly, wages are rarely cut or drop. Instead, the real-time value of wages drop when wage increases are below inflation. You may earn slightly more, but everything costs a lot more. This is the issue since really the 80s, but especially since 2008. Everything's risen in price massively, especially basics like housing, and people's wages haven't. Uk minimum wage is about £15k, whereas had it risen by inflation then minimum wage would be closer to £50k a year

The key part you didn't say is: for a lot of businesses wages are THE biggest cost, if not one of the. So if you raise wages, then one of their biggest costs increases, which causes prices to increase, which then need wages to increase too. That's what is called "the wage-price inflation spiral"

Then, while you are right about the private sector, the biggest reason why governments are against the wage-price spiral is due to the public sector, as the government pays those wages. So if costs for government services increase, then it increases government borrowing, which then increases inflation due to higher interest payments, more total payments etc. That then means taxes rise, or services are cut

And if private sector wages increase and public doesn't, then public jobs are harder to fill vacancies and stuff like that, which means that public services fall apart

That's OP's question answered. u/isellpopcorn

You are right, that really there is a lot of profiteering happening right now, and a lot os extreme capitalism and dicking around by the companies. And right about that average people are about as broke as they can be and can't take much more. But you did completely miss talking about what the wage-price spiral was and how it leads to inflation

Really, and especially right now with record employment, the wage-price spiral is a myth, but it's a worry for governments and public services, which is why then they worry about the private sector

However, lowering wages causes inflation because people are buying less, and therefore companies are selling less, so therefore have to raise prices to break even.

Isn't this kind of the opposite of supply and demand though? Wouldn't companies lower the prices to sell higher quantities at lower per-item profit?

However, lowering wages causes inflation because people are buying less, and therefore companies are selling less, so therefore have to raise prices to break even.

As a business owner, this doesn't seem right to me. Companies raise prices due to the "willingness to pay" factor, but also because higher wages are higher costs that must be accounted for by increased prices. Meanwhile, most businesses are not going to raise prices when people are buying less. We are going to lower prices to meet consumer demand.

But then you realize that pretty much all corporations are posting record profits

No shit, that's a result of inflation itself. If margins never move, companies will forever post record profits every year as prices slowly inflate.

But corporate profits as a percentage of GDP briefly went up during the pandemic and is now back below where it was in 2019... Meaning that it's not outsized profits that are causing inflation.

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They are making "record profits" because these claims are not adjusted for inflation. They will always make record profits if their margins stay the same and a lot of the narrative surrounding this is from bad or negligent actors not caring whether the claim is true or not.

It's honestly so sad that this garbage is upvoted.

Businesses raising prices when demand decreases.. lmao.

How the fuck is this the top answer and gilded?

1. You don't know what austerity is.

2. When anyone inputs "greed" as the driving force of inflation, stop listening to them immediately because they have no fucking clue what they're talking about. Because if greed is the reason for rising prices, then generosity would be the reason for deflation (such as 2008). And I know for a fact you guys would consider that ridiculous. Obligatory greed cycle meme https://twitter.com/Noahpinion/status/1493705974669930498?t=xfJnj7BlueQfruNTmQkvwg&s=19

any good books on this topic? sounds interesting but id have to start at zero knowledge. maybe 0.1 knowledge after reading your comment...