Montreal City Weblog

Kate 14:41 on 2023-01-26 Permalink Reply  

• Blork 14:47 on 2023-01-26 Permalink

  And unlike cauliflower, those prices don’t come down once inflation goes back to “normal.”

• DeWolf 14:59 on 2023-01-26 Permalink

  Maybe we have an economist reader who can explain this to me, but one of the most remarkable things I encountered upon moving to Hong Kong was how prices were quick to adapt to the changing economic circumstances. When times were tough, there was actual deflation – you could negotiate a lower rent from your landlord, and businesses lowered prices. During the financial crisis of 2008, bars offered deep-discount happy hour deals to draw in customers, and lots of discount restaurants and variety stores popped up in vacant spaces where other businesses had gone belly up. When times were good, all those prices went up just as quickly as they had gone down.

  That doesn’t seem to happen here. Prices remain stable for years on end, and when they finally do go up, they stay up.

• Blork 16:20 on 2023-01-26 Permalink

  I’m no economist, but it sounds like maybe it’s a cultural thing. Maybe (maybe!) there’s a sense among business people in Hong Kong that retailing, whether it’s groceries or restaurants or bars, is an essential part of the community, so the retailers respond in lean times by lowering prices and making goods more accessible. Compare that with western ideas of retailing which tend to be entirely driven by motivation for profit and growth, community be damned.

  Or maybe (probably more realistic) it’s good old supply-and-demand economics, where in a densely populated place with many retailers, demand goes down in lean times so prices correspondingly go down in order to keep enough sales to stay in business. (After all, it’s the problems with SUPPLY that are supposedly fuelling our current inflation. If supply were stable then prices would be too.)

• Blork 16:53 on 2023-01-26 Permalink

  Speaking of economics and retailing, there’s been talk lately about whether or not the grocery retailers are gouging us by taking advantage of wild inflation. Is it a coincidence that most grocers are recording record profits for 2022? How can we not see a link?

  But here’s the thing. Grocery retailers will say they’re not gouging us because their MARGINS are the same as before, or maybe even lower. So here’s a glimpse at a bit of retail number crunching to show how retailers can make significant extra profits while still claiming the their margins haven’t changed.

  Primer: MARGIN is the difference between what the store pays for goods and what they sell it for expressed as a percentage. The basic formula is:
  [(selling price – cost of product) / selling price] x 100

  So check out this pretty simple example:

  Pre-inflation: Retailer buys a cauliflower for 2$ and sells it for $3. [(3 – 2) / 3] x 100 = 33% MARGIN.

  Post-inflation: Retailer buys a cauliflower for 4$ and sells it for $6. [(6 – 4) / 6] x 100 = 33% MARGIN.

  Retailer can say “but our margins are the same as they were before inflation!” Yes, they are still making a 33% margin on that cauliflower. But look at the MARKUP, which is the actual dollar profit made on that sale:

  Pre-inflation: the retailer made $1.

  Post-inflation: the retailer made $2.

  DOUBLE THE MARKUP, i.e., double the GROSS PROFIT (not including other expenses) even though the MARGIN is the same.

  Even if the retailer lowers their margin:

  Retailer buys a cauliflower for 4$ and sells it for $5.50. [(5.50 – 4) / 5.50] x 100 = 27% MARGIN.

  …they can still say BUT OUR MARGINS ARE LOWER! However, they’re still making 50% more markup on that cauliflower than they did before inflation.

  So please keep this in mind when you hear retailers in the media saying they’re not gouging consumers. If they gave even a tiny F about consumers instead of their spreadsheets they’d adjust their margins so that MARKUP is only slightly higher than before (to account for other expenses that no doubt have gone up). When they complain that their margins are the same or even slightly lower, they are not mentioning that they are taking a higher MARKUP/PROFIT on each item than they used to.

  Side note: today at Provigo they wanted $6 for a one-pound bag of parsnips. A root vegetable, grown in Quebec. $6 for a one pound bag (that’s about three or four parsnips.)

• Mark Côté 17:33 on 2023-01-26 Permalink

  Not that inflation isn’t still super high and a problem, but prices do sometimes fall. StatsCan says prices in a number of categories fell in November and December. All categories are still above 2021 levels, though.

  Also, I can’t find it now, but a small number of subcategories actually fell over the course of 2022. Cannabis was one of them, because of market saturation.

• mare 17:42 on 2023-01-26 Permalink

  I think one reason is how rent control works in Quebec. It’s more economically sound to leave an apartment empty until you find a tenant for the rent you ask. Landlords can only (legally) increase rents with a few percent, usually around 1.5, per year while their costs are going up much faster. Lowering the rent with 6% will mean it will take 4 years of rent increases until it’s at the current level again. So even if you wait a few months until you find a tenant, you’re still ahead.
  You only need one tenant, it’s not like cauliflower where you need many buyers and if nobody buys it you have to throw it away. (I read more 50% of produce in grocery stores is thrown away, because it’s too expensive or goes ‘bad’ before it’s sold.)

  I kind of like the system in the Netherlands, with a much greater shortage of housing, they have a completely different way of rent control.
  Every apartment owned by building corporations (which is a large percentage of rentals) is evaluated on a form (or website now) and gets points for a long list of features like square footage, length of kitchen counter, type of heating, thermostats, square footage of windows, date of last renovation, etc etc. External factors are also included like schools, shops, factories or other noisemakers (minus points) in the neighbourhood, the unobstructed view, the state of the building’s maintenance etc.
  In the end the total number of points defines the amount of rent the landlord can legally ask. (With some wiggle room, for example x amount of points leads to a rent between 550 and 600 euro.) The amounts are indexed so they are going up every year, but slowly.
  If a tenant makes the calculates for their apartment and feels they pay too much they can go to the rental board who does the same calculation and decides on the allowed rent, and imposes it on the landlord, retroactively. With penalties if there was bad faith.
  If the number of points changes because of renovations rents can be raised faster, but only with a few extra percents per year, so the final higher rent is only reached after a few years. But this system does give landlords an incentive to increase the quality of their rentals.
  This system keeps all rents in check, and rent hikes between tenants aren’t possible like they are here. With a negative vacancy rate in the Netherlands (there are waiting lists for housing) rents would otherwise rise exponentially.

  (It’s probably a bit more complicated than I describe here, but this is already way too long.)