Who Is Responsible for Inflation? Some say greedy corporations are the culprits. (Photo by Peter Luck/BIPs/Getty Images)
Peter Luck/Getty Images
hide caption
toggle caption
Peter Luck/Getty Images
Who Is Responsible for Inflation? Some say greedy corporations are the culprits. (Photo by Peter Luck/BIPs/Getty Images)
Peter Luck/Getty Images
Everyone agrees that inflation is happening. What they disagree with is whodunit.
According to the latest figures, prices are up 7.7% compared to 2021. But for some items such as eggs, health insurance and gasoline, prices are rising much faster than that.
Inflation can be an elusive enemy. Quietly depleting part of your savings and salary, stealing everything from vacations to your favorite foods.
But who unleashed this thief into the US economy? What causes inflation? Let’s examine the clues and potential culprits.
prime suspect
The main suspects vary by partisanship. Many right-wing economists and politicians say inflation was caused by government spending and various aid programs (stimulus checks, student debt relief, Biden’s public money at the White House).
Many economists and politicians on the left point to the war in Ukraine (due to the oil price hike that affects almost everything else) and greedy corporations. many of them, despite The story of supply chain surges and rising costs is yielding record profits. (enterprise, aisle 4, with price gun).
smoking price guns
As in any good mystery, we look to clues. In the case of corporate greed, there are some pretty compelling ones.
First, corporate profits. This year we hit a record high. Many companies’ profits hit record highs.
This, of course, is frowned upon. If companies struggle so much with costs and supply chains, where do these billions of profits come from?
It’s starting to seem like all of this companies screaming about rising costs could be a case of alligator tears as they’re raising prices for all of us.
Corporate confession?
Rakeen Mabud is chief economist at the progressive think tank Groundwork Collaborative. “Corporations are taking a spoonful of sugar from the backs of families who are really struggling to survive,” she said.
Mabud has participated in dozens of corporate earnings conference calls and says he often hears CEOs bragging about how much they’ve raised prices.
Grocery giant Kroger has made billions of dollars in profits over the past few years. In a recent call with an investor, Mavdo heard what Chief Executive Officer Rodney McMullen had to say.
Revenue for AutoZone, which sells auto parts and accessories, increased 13%. CFO Jamere Jackson said inflation was “like our friend from a retail price point of view.”
Hostesses saw their profits jump more than 15% this year. CEO Andrew Callahan said:
Et tu Twinkie?
race express murder case
In addition to the corporate claims, there is a lot of consolidation that we have seen in American corporations over the last 40 years.
Case in point: The United States has four companies that control approximately 80% of the beef and poultry market.
This kind of integration could mean that companies don’t have to compete as much for our business, and there’s less pressure to keep prices low.
The meat company settled a lawsuit over price fixing earlier this year, raising concerns that a proposed merger between grocery giants Kroger and Albertson’s would mean higher prices for many consumers.
alibi
Of course, every suspect needs an alibi In the case of inflation, businesses have a pretty strong one.
For one thing, businesses are actually seeing rising costs.
Raw material prices are rising year by year. They’re rising at about the same rate as the prices we’ve been paying in stores.
A little more actually. Wholesale prices (the cost of raw materials that businesses buy to make what they sell to us) are up more than 8% from last year, while consumer prices are up 7.7% from last year.
This is strong evidence that much of the higher prices we pay in stores are due to higher raw material costs that are passed on by manufacturers and retailers.
twist
University of Michigan economist Justin Wolfers says corporate greed is a red herring and companies are not the cause of inflation.
“As my friend Jason Furman, an economist, said, ‘blaming inflation for material greed is like blaming gravity for plane crashes,'” Wolfers said. say. “Technically correct, but completely off the point.”
Wolfers said companies are always trying to charge as much as possible. In fact, the only reason he’s not paying $800 for a sock or a cheeseburger is greed, another form of competition.
“They are trying to kick out their competitors, so that desire forces them to offer lower prices,” says Wolfers.
So what has changed?
So why are prices rising now? Something has obviously changed.
According to Wolfers, most businesses have two main costs: raw materials and workers’ wages. As we have seen, raw materials have become much more expensive.
However, wages are another story.
So far this year, wages have risen by about 5%, while prices have risen by 7.7%.
Companies are not raising wages as fast as they are raising prices. Wolfers believes some of these corporate profits stem from lag.
“Most economists are a little baffled that wages haven’t grown any further,” says Wolfers. And it’s puzzling. After all, workers have more power than they did decades ago. Why don’t they negotiate further?
Wolfers suspects they are actually negotiating. Instead, you may be able to work remotely.
For many workers, flexibility and other benefits were worth more than money, so companies could get away with offering lower wages even in the moments they were competing for workers. I got
crime of opportunity
Still, Wolfers believes wages lagging prices won’t last long.
As prices rise, unemployment is low, and many companies are competing to hire workers, workers tend to seek higher wages.When Companies probably have to pay a lot to retain and attract talent.
As soon as companies start paying more wages, the record profits that CEOs are bragging about could go into workers’ salaries.
“What’s happening in the meantime is there’s a little bit of money that we might want that should go to the workers,” explains Wolfers. increase.”
Wolfers predicts that corporate profits will start to return to normal levels as wages rise. But what about the price?
And the culprit is…
After all, consumers may be the culprits of the inflation mystery. We have at least supported and agitated. “Inflation comes from demand,” says Wolfers.
Despite inflation, demand isn’t really flashing. Companies are raising their prices and we’ve been paying for it. In fact, in many parts of the economy, spending has risen with prices.
However, having more money doesn’t necessarily mean you’re buying more. Our collective savings are shrinking and household debt is increasing. You may be spending money that doesn’t need to keep up with price increases.
It’s probably not sustainable. And when our buying slows, businesses will start cutting prices to entice us to buy, says Wolfers. Prices will fall and inflation will ease. However, companies will push prices up as much as possible until demand drops. Beginner.
