Think corporate greed is the leading cause of inflation? Think again

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Some progressives have often blamed corporate greed for fueling the high cost of living that Americans are fed up with.

Yet new research from the Federal Reserve Bank of San Francisco casts doubt on the theory of greed and inflation.

SF Fed economists found that business price increases were not the main catalyst for the inflation surge from 2021 to 2022.

Fed researchers did find that some companies exercised their pricing power by raising their prices above their costs of production – a gap known as markups.

For example, markups increased for gasoline, cars and other goods in 2021. Likewise, markups increased for repairs, general merchandise, laundry, personal care and other services, according to the Fed.

Of course, the inflationary crisis was not limited to a few key sectors. It was the entire economy.

Zooming out and looking at markups across the economy, SF Fed economists found little evidence that price gouging was the main culprit.

“Headline margins – the most relevant measure of headline inflation – have remained essentially stable since the start of the recovery,” the paper concludes. “Rising margin rates have not been a key driver of the recent surge and subsequent decline in inflation during the current recovery. »

In fact, the SF Fed found that changes in collective margins over the past three years “are not unusual compared to previous recoveries.”

“It makes them angry and it makes me angry”

This runs counter to the argument of some progressives, including Sen. Elizabeth Warren, who for years refocused inflation argument about corporate greed.

“Currently, prices are rising at the pump, in the supermarket and online. At the same time, energy companies, food companies and online retailers are reporting record profits,” Warren said in December 2021. “This is not just a pandemic problem. It is not simply an inevitable economic force of nature. It’s greed – and in some cases, it’s downright illegal.

More recently, President Joe Biden has cited corporate greed as a reason for keeping prices high.

“If you look at what people have, they have money to spend. It makes them angry and it makes me angry that you have to spend more,” Biden told CNN’s Erin Burnett, pointing to the reduced size of Snickers bars and other food items. “It’s about 20% less for the same price. It’s corporate greed. It’s corporate greed. And we must face it. And that’s what I’m working on.

In February, Biden said there were “still too many companies in America ripping people off.” Price gouging, unwanted fees, greed, shrinking inflation.

“America – we are tired of being played for fools!” » Biden said.

Although the paper does not directly mention corporate greed, contracting inflation or Biden, the research undermines the argument that greed and inflation were the cause of early inflation.

White House spokesman Jeremy Edwards told CNN in a statement that the study supports Biden’s argument that “record profits are increasing inflation in some sectors, like gas and general merchandise.” “.

“These markups should have reversed as we recovered from the pandemic. The fact that they haven’t means prices can fall if corporate profits come back down to earth,” Edwards said. “President Biden has repeatedly called on big companies to pass on their record profits to their customers by lowering prices. And it takes on corporate scams, like hidden junk fees that cost families billions of dollars a year. “The president will continue to expose corporate scams and fight to keep money in Americans’ pockets.”

The debate comes as inflation remains a major frustration for Americans — and a significant political liability for Biden ahead of the November election.

Consumer confidence, a gauge closely monitored by the White House, unexpectedly fell to a six-month low in early May. It was the biggest one-month decline in nearly three years, a deterioration driven in part by concerns about inflation and interest rates.

Greg Valliere, chief U.S. policy strategist at AGF Investments, said the White House “is desperate to blame someone or something for inflation.”

“Blaming greedy corporations is simply looking for scapegoats,” Vallière told CNN. “There is no solution here that would have a major impact quickly, short of a reluctant Fed raising interest rates – an option that, surprisingly, is not out of the question.”

Many economists attribute the recent surge in inflation to more traditional factors, namely higher production costs linked to fluctuations in demand and supply problems linked to Covid-19.

Certainly, inflation has improved significantly over the past two years.

After peaking at 9% in June 2022, annual inflation as measured by the Consumer Price Index (CPI) has returned to the low to mid 3% range.

However, progress in combating inflation has recently stalled and data from the past three months showed prices rose more than expected. And inflation remains well above the 2% targeted by the Federal Reserve. The so-called last mile for inflation to return to normal has proven difficult.

This has prevented the Fed from giving Americans relief from high borrowing costs, which remain at their highest level in two decades.

Federal Reserve Chairman Jerome Powell reiterated Tuesday that it “looks like it’s going to take us longer to be confident that inflation will come down to 2% over time.”

Although the SF Fed report finds flaws in the greed argument, other research has been more mixed.

For example, the progressive advocacy group Groundwork Collaborative recently claimed that corporate profits caused 53% of inflation in the second and third quarters of 2023. This report found that corporate profits were responsible of 34% of inflation since the start of Covid-19.

“There’s a reason why most Americans blame corporate greed for high prices, and that’s because they know price gouging when they see it,” he said. said Caroline Ciccone, president of the progressive watchdog group Accountable.US, in a statement. “It simply doesn’t hold up when companies enjoying record profits, enriching their investors and giving huge bonuses to their CEOs claim that rampant price rises are beyond their control. They could have conveyed some success to consumers in the form of stable and reasonable prices, but many chose to take advantage of this again and again.”

Last year, the Federal Reserve Bank of Kansas City found that corporate profits contributed 41% to inflation during the first two years of the Covid-related recovery.

However, that same Kansas City Fed document notes that this is not unusual and that corporate profits have contributed even more (59% on average) to inflation in previous economic recoveries.

News Source :
Gn bussni

Sara Adm

Aimant les mots, Sara Smith a commencé à écrire dès son plus jeune âge. En tant qu'éditeur en chef de son journal scolaire, il met en valeur ses compétences en racontant des récits impactants. Smith a ensuite étudié le journalisme à l'université Columbia, où il est diplômé en tête de sa classe.Après avoir étudié au New York Times, Sara décroche un poste de journaliste de nouvelles. Depuis dix ans, il a couvert des événements majeurs tels que les élections présidentielles et les catastrophes naturelles. Il a été acclamé pour sa capacité à créer des récits captivants qui capturent l'expérience humaine.
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