A lot of economics seems to me like the “perfectly spherical cow in a vacuum” jokes you hear about physics. There’s no concept of friction or activation energy. “The market” simply adjusts in real time without human interaction.
In the real world someone needs to pitch a price increase. There’s risk that sales and profits might drop. That’s bad for the company and that persons career. When everyone else is raising prices and your costs are going up then that risk:reward ratio looks different.
My company was seeing increased material costs, they raised prices to cover that and then some. Sales are down but profits went up slightly. I was in the meetings where this was discussed yet people will tell me it doesn’t happen.
It's because if you are involved in economics, you've already bought the "markets are the most efficient by definition" dogma, so you cannot question that maybe untestable wild ass-pull theories from some dude writing a book aren't actually an accurate model of the real world.
Economics is at the level of aristotlian physics: "Surely lighter objects fall slower, it just makes sense and I have demonstrated so with this feather!" was the law of physics for millennia until someone actually decided to measure it in a way that could isolate the force of gravity.
Most prices are "sticky" -- they don't change prices continuously like the prices of commodities and stock prices do, they have a sticker price that changes irregularly.
Since they change less frequently, changes are larger.
Example: assume the price of wheat sees steady inflation at 5%/year, and the price changes every day.
Also assume that the cost of manufacturing a loaf of bread is solely dependent on the price of wheat, but because it's sold retail, it's price is sticky, and only changes every second year.
So the annual inflation on the price of bread fluctuates between 0% and 10%.
On the year the price goes up profits increase and on the year the price doesn't increase, profits go down.
