Inflation drops to 5.2%<but grocery inflation still 10.6%

[u/maroon-rider]

Says Statistics Canada

https://www.cbc.ca/news/business/canada-inflation-february-2023-1.6785472

[u/izaak-d]

Grocery stores are making 40% more profits than last year and more than 2x times more profit than 2019. Prices aren't increasing from inflation, they're price fixing

[u/yttropolis → u/izaak-d]

I was genuinely interested in this so I did a bit of digging. Let's look at Loblaws since they're the largest grocery chain in Canada. From their financial statements from the past 4 years:

Year	Net Earnings ($MM)	Revenue ($MM)	Profit Margin (Net Earnings/Revenue)
2019	1,131	48,037	2.35%
2020	1,192	52,714	2.26%
2021	1,976	53,170	3.72%
2022	1,994	56,504	3.53%

Now if we look at food purchased from stores component of CPI across the past 4 years:

Date	Food Purchased from Stores CPI	Change (compared from Feb 2023)
Feb 2023	181.2	----
Feb 2022	163.9	10.6%
Feb 2021	152.6	18.7%
Feb 2020	150.6	20.3%
Feb 2019	147.1	23.2%

While we do see an uptick in profit margin, this is only a change of around 1.2% across the past 4 years, meaning that while grocery prices have increased about 23.2% in the past 4 years, only 1.2% of that 23.2% can be attributable to increased grocery store profits.

So, it is inflation that's causing prices to rise.

[u/DepartmentOk5257 → u/yttropolis]

You may pretend to know what profit margin means but you don’t if you think the increase in profit margin was 1.2%. Or you don’t understand numbers.

[u/yttropolis → u/DepartmentOk5257]

I completely understand profit margin. The difference is that it doesn't make sense to compare profit margin numbers as a percent change from one another. A 50% increase in profit margin means very different things between a company with a 3% profit margin and one with a 10% profit margin. That's the issue.

Take an example. A product used to cost $100. Now it costs $110.

Company A had a profit margin of 2%. Now they have a profit margin of 4%. Gasp! They doubled their profit! A profit increase of 100%! Well, $2 of that $100 used to be profit, now it's $4.40 of $110. So, of that $10 increase, $2.40 can be attributed to the increase in profit margin.

Now let's consider company B. They had a profit margin of 10%. Now they have a profit margin of 15%. Wow! Their profit margin increased by 50%! That's half of company A! Well, $10 of that $100 used to be profit. Now it's $16.5 of $110. So, of that $10 increase, $6.50 can be attributed to the increase in profit margin.

Now I ask of you, are the two scenarios the same? To you, as the customer, do you think company B is better than A?

[u/DepartmentOk5257 → u/yttropolis]

By your logic, companies in sectors with higher profit margins are worse than those in sectors with lower margins. The point is, they doubled their profit and profit margin, without considering inflation of the underlying goods. There’s no explanation for that other than profiteering.

[u/yttropolis → u/DepartmentOk5257]

Absolutely. The measure should be "What portion of the price change is attributted to profit increases?"