Corporations use inflation as an excuse to raise prices and fatten profits

[Hydrogen]

Consumer prices are going up, but corporate profits are rising even faster.

Walmart, which announced third-quarter financial results this morning, was able to post better-than-expected earnings in part by offering fewer discounts to shoppers, but a lot of large firms have spent their recent quarterly calls bragging to investors about their ability to hike prices with relative impunity.

"What we are very good at is pricing," Colgate-Palmolive CEO Noel Wallace said. "Whether it's foreign exchange inflation or raw and packing material inflation, we have found ways over time to recover that in our margin line."

"We've been very comfortable with our ability to pass on the increases that we've seen at this point," Kroger CFO Gary Millerchip said in October. "And we would expect that to continue to be the case."

Corporations have a tendency to try and boost profit margins during periods of elevated inflation, The Wall Street Journal reported, and now is no different.

Roughly two-thirds of the largest publicly traded US companies have reported better profits this year than the same period in 2019, the WSJ found, citing FactSet data. Nearly 100 of those were performing at least 50% better this year than in 2019.

Former US Labor Secretary Robert Reich called this phenomenon a "symptom" of "the economic concentration of the American economy in the hands of a relative few corporate giants with the power to raise prices."

Inflation may be a problem for consumers, but the bigger issue is a lack of competition, Reich said.

"Corporations are using the excuse of inflation to raise prices and make fatter profits," he said.

American industries have gotten dramatically more concentrated in recent decades, diminishing the number of market competitors and increasing corporate price-taking power.

Corporate pre-tax profits as a share of total US output has also reached a multi-year high of 13.5% in the second quarter, which means that companies are taking an even larger slice of the economic pie. And that number is trending higher.

For example, consumer goods giants Unilever, Proctor and Gamble, and Colgate-Palmolive have remarkably similar portfolios of brands selling similar products, and each reported improved profits from higher pricing in the third quarter. Coca-Cola and PepsiCo also rolled out price increases around the same time.

This is not to say that there is illegal price-fixing going on, but having so few players in the game makes it a lot easier for companies to follow similar strategies.

Even the auto industry, which is pretty competitive compared with other consumer goods categories, is currently navigating its own version of the classic "prisoners dilemma" from economic game theory.

High demand and low supply has allowed most companies to boost profits by offering fewer discounts — a move automakers have wanted to do for decades — but the minute one company starts cutting deals to take market share, the others will soon face pressure to follow.

Input costs are indeed making it more expensive for businesses to provide goods and services, but the healthy profits that companies are taking in show that they're doing just fine as consumers increasingly see their buying power evaporate.

The remedy, Reich says, is not a higher interest rate from the Federal Reserve, which would likely slow down the economic recovery.

"This structural problem is amenable to only one thing: the aggressive use of antitrust law," he said.

https://www.businessinsider.com/corporations-using-inflation-as-excuse-to-reap-fatter-profits-reich-2021-11

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According to this, the issue isn't overprinting of fiat currency or inflation. The issue is corporations raising prices to enlarge profit margins. They cite market centralization in some industries as a culprit and suggest anti trust laws against monopolies as the ideal method to break up unethical monopolies and encourage decentralization of the economy. There is another angle mentioned where centralized markets are accused of potential price fixing, which could set the stage for a future proposal of government price controls, gradual shift to a planned economy or stronger state nationalization of the private sector at a later date.

There is a strong precedent for many of these trends occurring in countries outside the united states recently. Does anyone know which nations followed similar trends and what the eventual results were? Is inflation on the part of the state responsible for negative financial and economic issues, or do corporations and the private sector bear the burden of the blame? I hope we can collectively figure out answers to these questions, and determine how to address them before they become too large and devastating to be prevented. The clock is ticking and time is not on our side, unfortunately.

[Upgrade00]

We could all be living the same reality, cause this is exactly the scenario in my country. Inflation has been a major issue for so many years and we've seen prices of good increase from 100-1000% or even more over the past ten years, greatly increasing the cost of living, without any consideration of workers earning a living wage.

Large cooperations and even smaller ones with no monopoly hike the value of their goods and services during periods of inflation or economic crisis and may of them do not revert back to their previous prices if/when the market normalizes, so years of compounded hikes in prices has created this scenario where goods are grossly over priced, and supply is thinned out.

Does anyone know which nations followed similar trends and what the eventual results were?

The results here is a massive increase in poverty rate, which results to a somewhat commensurate increase in crime rate.

Is inflation on the part of the state responsible for negative financial and economic issues, or do corporations and the private sector bear the burden of the blame?

I would say it is primarily a result of actions from the state, cooperations simply exacerbate an existing situation by using it to their advantage.

[NeuroticFish]

My country has quite an experience with the inflation. It was quite high not that many years ago and even now it's not so small.
We used to see how each time the USD price took a jump, the gasoline price did the same.
But there were periods of time the USD price was calming down, and slowly even falling. Guess what? The gasoline price most often no longer followed the trend.

My point is: inflation was always used an excuse for fatten the profits. It's nothing new really. Basically the new thing is that this time it happens also in U.S. of A.

[fiulpro]

I believe all the developing nations are having the same issues. For example when I talk about my native country : India, the government does not just fail to handle corruption but at the same time they are unable to keep their currency at a stable rate. Poverty, pollution, education to name a few a lot of money is passed from the central government but at the end what the net profit for the people is even less than 1%, that makes these issues worse which causes problems with the crime, literacy, keeping the poor people in the web of poverty, the rich gets richer and the poor gets poorer. The printing is not a major issue, they have been discussing if it would be a good idea, therefore the government is literally not able to balance anything and the inflation is rising drastically. According to the state it can be 5-5.2% from the next year which is so much worse!! Right now it's around 6% and a healthy inflation rate should only be around 2%.

[crwth]

I think we need to accept that businesses/corporations wouldn't change anything if they are profiting from it. So if raising prices to enlarge their profit margins is the way for them to make more, you can bet that it would continue. So it's the behavior of the people in charge in the corporations are the culprit. I think that's why monopolies shouldn't stay in power for too long because they can have that power. Or if the monopoly practices the decentralization applications of any types, then it could set a standard towards the economy.

I think this is the reason why stocks are rising as well in price because the general trend that we have, if we based on historical data too that the reason for inflation is wanting to profit more by businesses and every other thing will follow.

[BernyJB]

I don't know now, but, at least when I was living in the US 8 years ago, that wasn't my experience at all. In fact, it was quite the opposite: corporations (especially wal- mart) would avoid rising prices like the plague.
Now in Argentina, everybody will use ANY excuse (real or not) to hike prices. The result is prices that are at least 3 times higher (in USD) than anywhere else, sometimes a lot more.

[odolvlobo]

Your vendetta against corporations is misguided.

If the prices at Walmart are too high, then you can simply shop elsewhere. Nobody is forcing anybody to shop at Walmart. Profits are high because people continue to choose to shop at Walmart, even as they raise prices.

[dezoel]

Seriously, these corporations are part of the problems that we are having. Every little thing that happens, they start increasing the price of every product, and the most annoying part of all these things is that once they up the price they never bring it down again, it just stays that way, and things would keep getting expensive.

They always look for every opportunity for them to up the price of their products, and apart from that one they would also go ahead to reduce the quantity and quality of their products, which is the one that annoys me a lot. It’s really high time they start the price controlling thing on these corporations, seriously.

[ultrloa]

I think this is how these corporation using the advantage of inflation to raise the prices of basic goods without any consideration to raise the minimum wage of the workers. It makes the poor becomes poorer so working your entire life isn't enough to rise from poverty I think. One should have a legit business and use that advantage too but the consumer would have to suffer too but that's how reality works if you won't buy they don't have a problem as long as someone didn't offers a decrease of price. But most of the time they are using the promo like n% off to attract customers yet it's just basically the normal price since they start and you aren't getting less just because of the promo.

[oHnK]

It is impossible for a company to increase prices at will without excess market power, perhaps because it monopolizes the market, unfair competition, and government support.  Usually this happens in countries that free the private sector to carry out their activities in the market without being controlled by the government.  The impact of inflation is not only due to financial stability problems but also the market itself.  Inflation is not always bad when referring to fiat glasses because the indicator of economic growth is inflation that is maintained.  This is proof that it is impossible for the time value of money to increase as it always decreases.

[xSkylarx]

It is impossible for a company to increase prices at will without excess market power, perhaps because it monopolizes the market, unfair competition, and government support.  Usually this happens in countries that free the private sector to carry out their activities in the market without being controlled by the government.  The impact of inflation is not only due to financial stability problems but also the market itself.  Inflation is not always bad when referring to fiat glasses because the indicator of economic growth is inflation that is maintained.  This is proof that it is impossible for the time value of money to increase as it always decreases.

In this case, the best example is a group of small stores in your area. If you have a cheap price, the other stores will usually follow. If you have a higher price, they will still follow. They are just talking about the price because they don't want customers to go to the cheapest one. Because there is a lot of demand and they are the only store, there are times when they talk about raising the price because the customer doesn't have a choice. When prices go up, even though they bought them at a lower price, the demand goes up so that they can make a lot of money.

[mu_enrico]

But don't forget that the real value of the dollar profits also affected by inflation. It's possible, even with the increased profit margin, the real value of USD profits falls below what stated years ago. But I think the inflation problem is deeper than just raising prices. For example, with such goods scarcity and economic instability, small businesses tend to go bankrupt quicker than big corporations, thus eliminating competition, and in the end, reflected on accounting report: good sales, fat profits, etc.

[davis196]

Inflation is always good for the rich and always bad for the poor.
I can change that saying a little bit by saying that inflation is always good for the big corporations and always bad for the small businesses.
There was a theory in macroeconomics,called "theory of rational expectations"(I don't know if I remember the name correctly). According to this theory,if everyone in a society is talking about inflation and expecting a price increase,the inflation will happen for sure.This is like a self fulfilling prophecy,because all the companies will use these expectations as an excuse to increase the prices.It doesn't matter whether or not they have a legit reason to increase the prices.
All the big US corporations bragging about fat profits won't keep bragging forever,because the prices of raw materials,energy and labor will have to increase as well.
  

[hugeblack]

I think the statements of Former US Labor Secretary Robert Reich are trying to pay attention to a symptom or a side effect of a disease, not a disease. Corporate profits have increased due to monopoly and centralization, but if inflation rates do not rise, companies will not find a motif in the increases.
In addition to the uncertainty, freight price increase, economic war, supply chain problems and others, many companies will find an opportunity to increase their prices, but where is the government role, especially in times of fluctuations that need some interventions.

Companies are guilty, but blaming them without focusing on economic problems is unrealistic.

[Gyfts]

The source is probably written by some political activist with no understanding of economics.

Inflation calculators do not use singular entities in order to calculate inflation. They're not using the price of individual products from individual companies, and comparing the price year over year. The inflation calculation occurs over entire sectors, averaging out the increase in prices. Is it coincidence that the inflation rate for nearly all developed nations increases the moment economies are shut down and an indefinite supply of money is injected into the economy? Nonsense.

For the inflation crisis to be the fault of corporations, you would need to see entire sectors collude with each other, including many corporations, to raise their prices collectively. That's not how things work.

The government will tell you its corporate greed causing inflation because it causes you to demonize free market economics and capitalism. They will do anything to shift blame away from themselves in causing an inflation crisis because the sad truth is, most people will believe corporations are responsible for the higher prices. After all, it's the corporations that determine what their products will cost, correct? The answer, of course, is no, it is a free market that determines the prices. And in a market with too large a demand due to increased money supply, the prices of the products increase.

[paxmao]

Something like that assertion only shows a deep lack of understanding of how a market works. Companies worth of that name are there for profit and that is their main goal. If the management does not maximise profit for the shareholder they will be fired and replaced with someone that actually does. The basics are as simple as that, even though there are cases in which management may have enough power to seek their own agenda.

Yes, companies that have pricing power will rise prices as much as they can and that is just how capitalism works. If you want to change that, change the laws and change the system... and good luck doing that in the US particularly.

[jrrsparkles]

Profit that is the only aim of every company in this world so I won't be surprised if they are still making money no matter the inflation rate increases. But the actual value of the products also increased but not enough demand so big corporates can able to invest and buy them for the cheaper prices but in bulk then they can able to sell them for the current market price.

[pinggoki]

I don't think so, natural resources aren't infinite, well most of them aren't so when that happens, the production of a product that has that problem will increase their prices. Also, corporations will pay more too when the inflation increases, it's just that they have a really good place to fall back when a big crisis comes.

[el kaka22]

From what I heard a CEO in our nation said, it is both a way to make more profit, but also they defend it by saying they do not know what the inflation will be like in the future so they are trying to price that in instead. If you make 100 bucks today for selling something that will be 150 bucks tomorrow, then you basically made a loss. Sure you spent 50 bucks, and got 100 in return, but you could have waited another day and make 150 instead.

Numbers are just made up, of course it is not that much difference, but you get the point, usually it is more like buy for 3.60, sell for 4.20 and rises to 4.40 instead type of deal. So this is their defense, obviously it is a lie, obviously they would still make a profit, it is only important on how much they spent to buy and how much they profit before they sell it, but it is obvious that they do not care about it all that much.

[timerland]

The money printing is only one aspect of inflation.

This is the more important cause of inflation - which is that there is significant markups (cost-push) and panic buying (demand-pull) in all sectors of the economy, especially in terms of semiconductors.

Not sustainable at all, fiat is going to struggle to outperform any asset class.