The Bikkie Police

Full disclosure: I own shares in Coles and Woolworths. It is part of my new strategy of investing in bread and butter companies born of bitter experience of investing in fly-by-nights. So I have vested interest, albeit miniscule, in the recent plunge in the market value of Coles and Woolworths. The cause of which was the ACCC and its merry band of left-oriented apparatchiks. Via anti-capitalist busybody tip-offs, the ACCC went poking around the shelves of supermarkets to discover (gadzooks!) that the discounted price of some products was more than the price of the products immediately before they were increased in price.

Apparently this offends some law or other which prohibits fooling customers into thinking they are getting a discount when they’re not. Hmm? Never come across that kind of behaviour by salesmen before.

But, in this case, how do we know that the discount isn’t real? If the price of the item rises because suppliers demand and are given an increase in the prices paid to them (something I believe the National Party are keen on) and other store costs increase, including electricity and wages, then maybe the price rise is justified. In any event, it is up to Coles and Woolworths to decide that not the ACCC. Why following a rise in price of a product would its price be subsequently discounted?

To fool people? I doubt it. It is probably to ease consumers into the new price regime; to prevent them deserting the product. Is there a profit motive behind it? I hope so as a shareholder. But there’s the rub. Profit-making is probably viewed with suspicion in the corridors of the ACCC. What a complete beat up this is by a taxpayer-funded entity that should have more important things to do than deciding on the fair price of Oreos. Predictably, of course, our jejune media class fall for it hook, line and sinker and go into hand-wringing mode.

There is no evidence that the supermarket giants, so called, are making abnormal profits. I would know, I would be richer. For the size of our market there is ample competition. That is where government interference should start and stop. Is the regulatory regime which governments have put in place encouraging or discouraging of competition. Make sure it is encouraging and then step out of the way; go play golf where little mischief can be done.

Why write about this? Because the beat up serves as a welcome distraction for a dysfunctional federal government. Supermarket blaming while Rome burns. Inflation has nothing at all to do with Coles and Woolworths. Zilch. Inflation has been caused and is always caused by government spending and accompanying “money printing,” which also unpins the ability of banks to lend and create yet more money. The ACCC is a godsend for Albo and Chalmers. Enough said. Not quite. The issue has also lured the governor of the Reserve Bank into talking poppycock.

The RBA’s Michele Bullock was quoted thus: “some firms might have used opportunities of strong demand to more than pass on any increases in costs and increase their profit margins.

My response: good luck if they did, it is called capitalism. But, really, exactly what is Ms Bullock on about. Has there been any increase in “demand” for Oreos, for bacon, for butter, for cornflakes? Are people eating more than they used to? Of course not. There has been no increase in demand for Oreos or anything else. Inflation is a product of excessive growth in the money supply. How best to explain it to the man in the street?

First, advise against reading misleading pronouncements by the Reserve Bank or by economists generally. Second, imagine two bidders at an auction for a property, which went unsold five years ago. Since then, their bank borrowing capacity has increased by 20 per cent. The property sells for 20 per cent more than the highest bid five years before. Notice. The same supply – the property; and the same demand by the two bidders – for the property. Supply and demand haven’t changed. Just bank borrowing; effectively, the money supply. This isn’t pedantry. It is central to understanding what inflation is and how it can be combatted. And Coles, Woolworths or Oreos don’t figure in it.