If Kristi Noem really wants to make inflation a campaign issue, maybe she needs to tackle the root causes. President Joe Biden isn’t raising prices; corporations are raising prices. And while we should expect sensible businesses to raise prices to cover higher wages and remedies to supply chain challenges, corporations appear to be raising prices just to pad their profits.
BP’s price hikes have gone well beyond covering increased costs of doing business:
BP’s profits hit their highest in eight years in 2021, lifted by soaring gas and oil prices, as the company boosted share repurchases and accelerated plans to cut emissions with increased spending on low carbon energy.
…In the fourth quarter of 2021, BP’s underlying replacement cost profit, its definition of net earnings, reached $4.1 billion, beating analysts’ forecast of $3.93 billion.
That was BP’s largest quarterly profit since early 2013.
BP shares were up 0.3% at 1446 GMT, compared with a 0.1% decline in the broader European energy index (.SXEP).
For the year, BP’s $12.85 billion profit compared with a loss of $5.7 billion in 2020, when it wrote off $6.5 billion from the value of its oil and gas assets following a slump in energy demand [Ron Bousso, “Energy Prices Lift BP Profits to 8-Year High,” Reuters, 2022.02.08].
Cereal maker Kellogg Co (K.N) forecast full-year profit growth above market expectations on Thursday, riding on higher product prices that helped overcome labor strike disruptions and soaring input costs in the fourth quarter.
…Kellogg, however, expects adjusted full-year profit per share to grow by 1% to 2% on a currency-neutral basis thanks to increased prices for its breakfast cereals and snacks such as Pop-Tarts and Pringles. Analysts on average expected a 0.1% rise, according to Refintiv IBES data [Mehr Bedi, “Kellogg Annual Profit View Crunches Estimates on Price Hikes,” Reuters, 2022.02.10].
Container shippers, who have figured prominently in the shortage of global hauling capacity, have cranked up their prices to produce record-breaking profits. Bloomberg reports that Hapag-Lloyd’s 2021 profits were more than double their total profits over the last two decades:
Corporations and Republicans will tell you the higher prices you see are due to workers seeking to catch up on decades of wage stagnation, but price data belie that blame:
But while corporations may point fingers at rising pay, economic data show wages are far from the main driver of inflation. The prices growing fastest today — cars, fuel, housing and furniture — point away from wages and toward other explanations, such as goods shortages or companies padding their profit margins. More broadly, it has long been clear that the relationship between what workers earn and what consumers pay has been tenuous at best.
If higher worker pay was truly the main driver of prices, it follows that more labor-intensive service sectors of the economy would be seeing the largest jump in consumer prices. Yet the inflation picture today shows the exact opposite: Price increases for goods are outstripping services by a factor of three.
“Goods prices are the main driver of inflation,” Julia Pollak, labor economist at ZipRecruiter, told CBS MoneyWatch. “Wages so far have not been the main driver of inflation at all. Inflation was higher at first in less labor-intensive industries” [Irina Ivanova, “Rising Fuel Prices and Corporate Profits—Not Wages—Are Chiefly to Blame for Inflation,” CBS News, 2022.02.22].
Labor costs are mitigated by the savings of replacing experienced workers with fresh talent, so profit margins can keep growing:
Some corporate leaders have been blunt about their plans to pass companies’ higher supply-chain prices to consumers. For example, consumer goods giants Colgate-Palmolive, Procter & Gamble and Unilever have been able to raise prices without losing sales. Nearly two-thirds of publicly traded companies report fatter profit margins than before the pandemic, according to the Wall Street Journal.
“Many companies we’ve spoken to have seen their overall payrolls barely budge at all,” ZipRecruiter’s Pollak said. Because of pandemic retirements, “They’ve lost their most experienced, highest paid people and replaced them with a younger cohort” [Ivanova, 2022.02.22].
Corporations are able to hike prices to boot profits in part because of a problem Kristi Noem mentioned last year in one of her many disjointed headline-grabs but hasn’t really followed up on: corporate concentration. We have to turn to Senator Elizabeth Warren to make the connection between unchecked corporate monopoly power and profit-driven inflation:
Senator Warren: Well, but, let me ask it the other way, then. Because we’re still kind of doing Econ 101 here. If you’re a corporation that has eaten up most of the competition and cornered the market, is it easier for you to raise prices on your customers and maximize your profits because you don’t have to worry about losing your business? In other words, that’s– you’ve lost the discipline that the market imposes.
Chair Powell: In principle, if you don’t have competition and you’re a monopolist, yes, you can raise your prices.
Senator Warren: Okay. And over the past year, we know that prices have risen because of supply chain problems, unexpected shifts in the demand for goods, and even higher labor costs.
But if corporations were simply passing along these costs in highly competitive markets, would the companies’ profits margins have changed much?
Chair Powell: So many things affect– affect those– that calculation. But– in principle, you could be right, but.
Senator Warren: Well, it’s very much not what we’re seeing right now. Today, nearly two out of three of the biggest publicly traded corporations in the country are reporting fatter profit margins than they reported before the pandemic which doesn’t sound like they’re just passing along costs. So let me ask you: does that increase in profit margins, combined with greater market concentration in industry after industry, suggest to you that some corporations may be passing along increased costs and, at the same time, charging more on top of that to fatten their profit margins?
Chair Powell: That, that could be right. It could also just be, though, that demand is incredibly strong and that, you know, they’re, they’re raising prices because they can.
Senator Warren: Well, that’s the point. They’re raising prices because they can, and they’re not being competed down. You know, market concentration has allowed giant corporations to hide behind claims of increased costs to fatten their profit margins. So the consumer pays more both because the corporation faces higher costs and because, as you put it, because the corporation can increase prices.
The reason I raise this is that higher prices have many causes, and we can’t overlook the role that concentrated corporate power has played in creating the conditions for price gouging [Senator Elizabeth Warren, questioning Federal Reserve Chairman Jerome Powell, nomination hearing before U.S. Senate Banking, Housing, and Urban Affairs Committee, transcribed on and retrieved from Senator Warren’s website, 2022.01.11].
You want root causes of inflation? Republicans promote the corporate tax breaks that help concentrate wealth and power and resist the regulation that would check that power. That unchecked concentration of wealth and power thus allows corporations to resist competition and charge you more for everything, with price hikes well beyond their actual costs of making and shipping everything. This inflation is thus brought to you by Republicans, whom you have a chance to root out this fall.