Big Macs and the Cost of Living Crisis

https://www.abc.net.au/news/2024-08-05/cost-of-living-interest-rates-burgers/104156654

55 66 2 years ago

abc.net.au

kshgad• 2 years ago

This is an overdue submission from mainstream media. The good thing is that this particular inflation example cannot be denied.

33% increase in food prices can be seen in many other products. The general inflation is of course due to reckless COVID spending and rising energy prices as well as reckless and ineffective sanctions.

33% increase also applies to health insurance in Europe as well as rents.

Now, I wish we had journalists who would pick up these issues in a timely manner and not two years after the damage has been done and is too big to ignore.

rho138• 2 years ago

Health insurance in europe

Uhhhhhhh

consp2• 2 years ago

Prices here have rizen from about 100euro/month to about 150/month in 6 years (2018 was easiest to find the numbers for).

didgeoridoo• 2 years ago

Are you under the impression that healthcare in every country in Europe is single-payer or socialized?

bowsamic• 2 years ago

I live in Germany and I pay a little over 700 euros a month for health insurance (not private, but the system of "statutory" health insurance company)

StableAlkyne• 2 years ago

The general inflation is of course due to reckless COVID spending and rising energy prices as well as reckless and ineffective sanctions.

Reckless spending played a part, but a major (if not the biggest) component was every company getting it into their heads to "test the price advantage" of their products. This amounted to jacking up prices knowing people would suck it up and buy, lying that it was "supply chain" forcing their hand, and simultaneously posting record profits every quarter for three years after the vaccine dropped.

prepend3• 2 years ago

component was every company getting it into their heads to "test the price advantage" of their products

This happens all the time. Companies are constantly maximizing greed. What allowed the price increases is the available cash (due to reckless spending). If customers hadn’t been able to pay, then companies wouldn’t have increased prices.

I hear this comment a lot and it’s like saying “bob didn’t die from smoking, he died from the giant tumor.”

consp2• 2 years ago

Wealth extraction is pretty much what I expected the real reason was, and all the profits went to shareholders and was not put into the economy in any real sense (I'm going to preemt the pension fund strawman here).

You also see massive shrinkflation (e.g. you know buy 3 bags instead of 2 for a lot of products) which has the same result.

bko2• 2 years ago

Reckless spending played a part, but a major (if not the biggest) component was every company getting it into their heads to "test the price advantage" of their products

What makes 2022 so unique that just now corporations figured out they can raise prices? Why haven't profit margins taken off in 2022 [0] ?

These always struck me as bad explanation. Mostly hand waving. I think a more reasonable explanation is that increasing the money supply over 30% in a few years resulted in prices and asset levels going up ~30%.

[0] https://www.gurufocus.com/economic_indicators/62/corporate-p...

spaceman_20203• 2 years ago

Yet no one in the mainstream is willing to admit that wild inflation was largely a result of out of control money printing. Usually, this leads to asset price rise (which has outpaced inflation for decades now).

But this time, there was so much money sloshing around that it pumped assets to prices that were beyond the market’s absorption (see home prices). Once there were no quality assets left to buy, the money found its way to garbage assets (NFTs, crypto) and consumption

Admitting this would mean admitting that the foundations of the western capitalist system are weak. Little wonder why the blame is deflected to a million things, but NEVER money printing and esoteric money juju such as QE

FabHK3• 2 years ago

First, the increase in the McD burger price over those 7.5 years constitutes around 4% p.a. That's certainly not great, and twice the usual inflation target, but not catastrophic.

Second, there was no "out-of-control" money printing in Australia, see [1].

Third, if there was out-of-control money printing (and there was some loose monetary policy, and at the zero lower bound this does involve expansion of the central bank balance sheet, ie QE), it was after the GFC in 2007 [2]. However, there was no inflation for a decade and a half after.

But then, the pandemic and the Ukraine war hit. Now you had supply constraints (reduced production and logistics challenges) and also increased demand (due to fiscal easing (stimulus, subsidies) during the pandemic, and people "catching up" on spending afterwards). And then there was a short bout of inflation.

Why do people keep complaining about money printing if that's not the cause for inflation?

Fourth, you find extensive discussion of all these issues in utterly mainstream media.

[1] Here's M1 and M3 for Australia (log scale).

https://fred.stlouisfed.org/graph/?g=1riAu https://fred.stlouisfed.org/graph/?g=1riAC

[2] US Fed Assets (log scale)

https://fred.stlouisfed.org/graph/?g=1riAC

willcipriano• 2 years ago

When they talk about things "costing more", I think that framing is confusing. Things don't cost more the dollars instead cost less.

Etheryte• 2 years ago

Both can be true at the same time. Items can demand more purchasing power after adjusting for inflation, and the sticker price can be more because the money is devalued. In many (most?) countries worldwide, both have happened to an extent.

randomdata• 2 years ago

Things can increase in value independent of a currency's change in value, so while dollars costing less may tell some of the story, it does not necessarily tell the entire story.

n4r9• 2 years ago

Is it just me that's a little perplexed by this article? It begins with a promise to explain what drives burger prices and what it tells us about the cost of living. It then concludes that the prices are driven by some nebulous combination of forces and says nothing about the cost of living.

freitzkriesler2• 2 years ago

The worst part is the shrinkflation which is the biggest insult as this occurs.

Governments cannot handle the money printers and elastic currencies are a scam.

mseepgood• 2 years ago

Why does the y-axis of the price chart not start at 0?

olddustytrail• 2 years ago

Because it never cost 0.

It's usually wrong to set the y-axis to 0. The whole point of a graph is to illustrate the change that you're talking about. Imagine a graph of global temperature, for example, where you decide to use Kelvin. Set the y-axis to 0 and look! There's no noticeable change at all. Global warming is a myth!

You should set the y-axis so it shows the normal variation and then you can see if recent changes are outside of that.

edflsafoiewq• 2 years ago

Same reason the x-axis doesn't.

prophesi• 2 years ago

I also wish they'd add a title to the y-axis; defeats the purpose of a dynamic chart if you can't tell what is being charted at a glance.

nness• 2 years ago

I really wish editorial-style reporting would stop doing this particular style of article. It's very hard to browse and and jump between visual landmarks, whilst the dynatism offers very little for making the subject-matter more compelling.

infradig• 2 years ago

The ABC loves this style, for some years now. I haven't encountered it elsewhere and I loathe it.

satvikpendem4• 2 years ago

It's important to also note that these deals from before still exist when using each fast food chain's app. They have some insanely good deals there, while they increase the costs of non-app users in order to subsidize frequent app users' cost, I suppose.

smcin3• 2 years ago

They're a nudge to move users to install the app. Using the app to redeem a deal gives them much more data on individual customers than using a coupon.

satvikpendem4• 2 years ago

Yes however no one cares as long as they get a good deal.

jmyeet2• 2 years ago

There's one factor that isn't mentioned here that really should be: the cost of real estate.

Australia used to have a really good quality-of-life. This all started to change in the 2000s when housing prices skyrocketed. Now look at the median prices for Australian major cities [1]. Over $1.1 million for Sydney as the median price.

Now bear in mind that wages haven't changed that much in the past 2 decades. A good salary is still $100-200k and not much more than that. Any job you have in tech in Australia, outside of Google, is likely to still start with a 1, maybe into the low 200s.

Now if you happen to have bought 20 years ago, you're fine. If not, you're screwed. In an election a few years ago, the Opposition threatened to remove or reduce negative gearing and they pretty much lost because of it. What is negative gearing? The ability to deduct losses on investment properties against your ordinary income. Crazy, right? For a country where buying your primary residence is increasingly out of reach. More [2].

Why does this matter? It affects commercial real estate too. Now imagine 20 years ago a lot for your McDonald's franchise and the building cost $500,000. Now it's $2.5 million. That cost is built into every burger sold.

Rising house prices are simply stealing from the next generation and it cannot continue indefinitely. The end state here is a sea of housing people have to spend their entire income to pay for dotted with the occasional Aldi store and a bunch of virtual kitchens.

[1] https://propertyupdate.com.au/the-latest-median-property-pri...

[2] https://www.afr.com/property/residential/why-albanese-can-t-...

chickenchase-rd• 2 years ago

Some countries have long standing laws which help control the price of buying a residence, so they will not have this penalty baked into their future financial situation. Basically ensure that residential property should be unattractive and unprofitable to hold commercially for renting or sitting empty.

mschuster912• 2 years ago

Rising house prices are simply stealing from the next generation and it cannot continue indefinitely. The end state here is a sea of housing people have to spend their entire income to pay for dotted with the occasional Aldi store and a bunch of virtual kitchens.

Exactly this. Neo-feudalism is the endgame. The 99% own nothing to their name, the 1% extract rents.

Just think about your daily life: your car is leased/financed and only has a small residual value at the end of the term, your phone is financed under contract from your provider and almost worthless at the end of the term, you live in a rental home and can't save enough for a downpayment on your own real estate, and if you're lucky enough to have been gifted/inherited some money, you still pay down debts for decades, and when you inevitably run into old age you have to sell your home to pay for medical and end-of-life care.

All that you really own in your own name is maybe some consumer goods (e.g. a laptop, computer, furniture - and an outright lot of that is financed on some sort of credit for many people) and a 401k or its equivalents. And your pittances of savings are routinely wiped out by everyday bullshit: your car breaks down, you lose your job because of capitalism rewarding mass firings on the stock market, you have health expenses that aren't covered by your insurance, you have to pay a vet because your cat ate a shoe string, some relative (or you yourself) needs to move out of their home for employment or domestic violence reasons...

hifromwork2• 2 years ago

Just think about your daily life: your car is leased/financed and only has a small residual value at the end of the term, your phone is financed under contract from your provider and almost worthless at the end of the term
a laptop, computer, furniture - and an outright lot of that is financed on some sort of credit for many people

I... can't relate. This is entirely a choice, one that advertisement tell you is the right one, but a choice nonetheless. Personally, I don't understand why people take on debt to buy shiny goods.

Yes, some of that things are necessary, but you don't have to lease a new car or change your phone every two years.

spaceman_20203• 2 years ago

Here in New Delhi, an apartment I was interested in was $380k in April 2023

In Jan 2024, it was $520k

Average incomes here are $6,500. My wife, an assistant professor (with tenure) at the country’s top public university, makes $17,000.

These aren’t fancy apartments - those start at $600-800k+

Real estate prices across the world are absolutely out of control. Every young person I know is angry and distraught. People are holding off on having kids or not having them altogether because you really can’t afford to live in any major city (which, coincidentally, also have the jobs) without both the parents working full time.

sien• 2 years ago

Discussion by actual Australians :

https://old.reddit.com/r/AusEcon/comments/1ek6rk0/whats_driv...

The most important quote is :

Do you seriously think McDonalds has that much market power to be able to raise margins without any issue? If you're having trouble finding an alternative to McDonalds, you might need to reconsider your weight mate.

Also, this ABC article is fucking bullshit, putting quotations on domestic profits. The RBA calculates the profits based on the sales and costs accrued domestically, and profits are usually offshored through transfer pricing or intercompany lending after the fact. Hence, the calculation of their measure regarding profit margins and profit share as a % of the economy accounts for offshoring as it considers the sales and costs a company incurs before any of this income is shifted overseas.

Not only that, but I also don't think McDonald's has the market power to raise its profit margins as high as a telecommunications monopoly when you can walk yourself down the road for a cheaper burger that's better in quality. There's a reason why the sales for McDonald's are going down. If you can't handle McDonald's raising its prices, eat a god damn salad.

annexrichmond• 2 years ago

please don't bring reddit rhetoric to HN.

greatgib• 2 years ago

Sadly this article does not give any clue about how the evolved the income/profit of the mother holding of McDonald's. This is probably where we can check if big mac inflation went to profit and dividends or just covering expenses.

dools2• 2 years ago

“This is why interest rates are an effective tool for lowering inflation”

Increasing interest rates just increases government transfer payments but the money goes to people who already have money, and they happily spend it.

Any reduction in spending is matched by an increase in a different demographic.

Once the central bank starts increasing interest rates that’s what drives inflation.

The real reason increasing interest rates is a popular response to inflation is because of academic capture by right wing libertarians, all to benefit the wealthy.

After all, if there are inflationary pressures it’s the creditors that lose out unless they can charge more interest.

hifromwork2• 2 years ago

It's easy to criticise, but what do you recommend? Lowering interest rates to fight inflation? I think Turkey keeps trying this, without much success.

datavirtue2• 2 years ago

More than one interest rate, for starters. Why do home purchasers have to suffer while the fed reigns in funny-money (buying stock with no interest loans) "investors."

dools2• 2 years ago

The #1 thing that brings prices down in a market economy is competition. Fiscal policy is the best policy tool for ensuring a level playing field, ensuring full employment and price stability. Monetary policy is good for nothing! ZIRP forever

Aeolun• 2 years ago

Low interest rates seem to help Japan keep inflation (and thankfully, big mac prices) low anyway.

FabHK3• 2 years ago

Japan has been fighting with deflation for a long time, and kept rates extremely low as a consequence, and also engaged in QE.

j16sdiz• 2 years ago

TLDR:

McDonald’s royalty fees, which redirect profits overseas, went up by 29 per cent that year — more than 10 times faster than its sales did.

For Australia, it's not wages or ingredients, it's royalty fee.

polotics• 2 years ago

Cultural-dominance payments to the old US of A. What about going to Bluey Burger instead? I know I would!

bryanlarsen3• 2 years ago

In my experience burger prices are going down this summer. Whopper and McDouble value meals are reasonably priced now, and coupons for Big Macs are more plentiful.

dang• 2 years ago

I guess this is probably related:

Soup Dumpling Index: How prices compare around the world - https://news.ycombinator.com/item?id=41172923 - Aug 2024 (3 comments)

Big Macs and the Cost of Living Crisis

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