Sunday, May 05, 2024 8:29:03 PM
More on inflation;
Half of recent US inflation due to high corporate profits, report finds
Thinktank report says ‘resounding evidence’ shows companies continue to keep prices high even as their inflationary costs drop
https://www.theguardian.com/business/2024/jan/19/us-inflation-caused-by-corporate-profits
A new report claims “resounding evidence” shows that high corporate profits are a main driver of ongoing inflation, and companies continue to keep prices high even as their inflationary costs drop.
The report, compiled by the progressive Groundwork Collaborative thinktank, found corporate profits accounted for about 53% of inflation during last year’s second and third quarters. Profits drove just 11% of price growth in the 40 years prior to the pandemic, according to the report.
Prices for consumers rose by 3.4% over the past year, but input costs for producers increased by just 1%, according to the authors’ calculations, which were based on data from the Bureau of Economic Analysis and National Income and Products Accounts.
“Costs have come down substantially, and while corporations were quick to pass on their increased costs to consumers, they are surprisingly less quick to pass on their savings to consumers,” Liz Pancotti, a Groundwork strategic adviser and paper co-author, said.
Since pandemic inflation spiked in 2021, a high-stakes debate has played out about its sources. Many progressive economists pointed to corporate profits – or “greedflation” – and supply chain issues as a driver of high prices, while their more conservative counterparts singled out government stimulus cash and high wages.
The report’s authors scoured corporate earnings calls and found executives bragging to shareholders about keeping prices high and widening profit margins as input costs come down.
The findings come as the Federal Reserve has hiked interest rates to their highest point in 20 years. The report casts serious doubt on the need for further interest rate hikes, and instead calls for stronger policies to rein in “corporate profiteering”.
Prices rose in 2021 as labor costs jumped and supply chain shocks from the pandemic and the Ukraine war snarled shipping traffic and left energy supplies in question. But those issues have in many cases been fully sorted out or are easing, and the labor market has stabilized. Many commodities and services producers’ prices have actually decreased, the report notes.
Nearly 60% of the drop in key goods and services’ inputs was driven by large declines in energy costs, such as jet fuel and diesel fuel, while transportation and warehousing costs have fallen by nearly 4% since June 2022 peaks.
Still, prices remain high. Consumers are still paying about 25% more for groceries, the report notes as an example.
Corporations maintain high prices by exploiting cost shocks caused by events such as the Ukraine war and coordinating price hikes, said Isabella Weber, a University of Massachusetts Amherst economist who was not part of the paper.
The shocks create an environment in which it is safe for firms to increase prices as they expect their competitors to do the same, said Weber.
“This is a form of implicit collusion,” she said. “Firms do not even need to talk to one another to know that a cost shock is a great time to raise prices. But when costs fall, price-setting firms do not have any incentive to decrease prices.”
If no firms launch a price war, Weber added, then companies “hold the line” on prices and widen margins. She pointed to food processors as an example.
The paper zooms in on the diaper industry, of which Procter & Gamble and Kimberly-Clark control 70% of the domestic market. Diaper prices have increased by more than 30% since 2019 from, on average, $16.50 to nearly $22.
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It's not just the US: Corporate profits are keeping inflation high in Europe too
https://www.businessinsider.com/corporate-profits-keep-inflation-high-in-europe-and-america-imf-2023-7
Juliana Kaplan Jul 6, 2023, 6:00 AM MDT
The economic downturn the world has been bracing for still hasn't arrived, labor markets are still booming, and yet the economy feels bad. You can blame inflation for that one — and how much money companies are making off of you.
It's what some economists have termed "greedflation," as companies have found that customers are willing to tolerate ever-increasing prices amid pandemic-era economic conditions like supply chain issues and scarcity. In that model, companies pass along their increased costs to consumers, and then still make additional profits on top of it.
And it's not just an American issue: Higher prices in Europe are largely powered by corporate profits, according to a new working paper from the International Monetary Fund, and profits need to normalize before prices can truly drop.
IMF researchers Niels-Jakob Hansen, Frederik Toscani, and Jing Zhou find that domestic profits in Europe account for a little under 45% of inflation in the Euro Area, while higher wages — which have been pointed to as a primary driver of inflation — account for just a quarter of inflation.
"The growing literature on the role for profits is generally aligned with our finding that firms have fared relatively better than workers even in the absence of a large increase in markups," the IMF authors write.
Inflation is not solely caused by soaring profits, but the working paper finds that profits rising well above pre-pandemic trends have made their mark on European inflation. According to the IMF research, both labor costs and profits rose "significantly" above their recent averages — but profits made up a greater part of that. In particular, industries like trade, food, and travel saw their profits skyrocket, and contribute more to rising costs......................................................
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.
Half of recent US inflation due to high corporate profits, report finds
Thinktank report says ‘resounding evidence’ shows companies continue to keep prices high even as their inflationary costs drop
https://www.theguardian.com/business/2024/jan/19/us-inflation-caused-by-corporate-profits
A new report claims “resounding evidence” shows that high corporate profits are a main driver of ongoing inflation, and companies continue to keep prices high even as their inflationary costs drop.
The report, compiled by the progressive Groundwork Collaborative thinktank, found corporate profits accounted for about 53% of inflation during last year’s second and third quarters. Profits drove just 11% of price growth in the 40 years prior to the pandemic, according to the report.
Prices for consumers rose by 3.4% over the past year, but input costs for producers increased by just 1%, according to the authors’ calculations, which were based on data from the Bureau of Economic Analysis and National Income and Products Accounts.
“Costs have come down substantially, and while corporations were quick to pass on their increased costs to consumers, they are surprisingly less quick to pass on their savings to consumers,” Liz Pancotti, a Groundwork strategic adviser and paper co-author, said.
Since pandemic inflation spiked in 2021, a high-stakes debate has played out about its sources. Many progressive economists pointed to corporate profits – or “greedflation” – and supply chain issues as a driver of high prices, while their more conservative counterparts singled out government stimulus cash and high wages.
The report’s authors scoured corporate earnings calls and found executives bragging to shareholders about keeping prices high and widening profit margins as input costs come down.
The findings come as the Federal Reserve has hiked interest rates to their highest point in 20 years. The report casts serious doubt on the need for further interest rate hikes, and instead calls for stronger policies to rein in “corporate profiteering”.
Prices rose in 2021 as labor costs jumped and supply chain shocks from the pandemic and the Ukraine war snarled shipping traffic and left energy supplies in question. But those issues have in many cases been fully sorted out or are easing, and the labor market has stabilized. Many commodities and services producers’ prices have actually decreased, the report notes.
Nearly 60% of the drop in key goods and services’ inputs was driven by large declines in energy costs, such as jet fuel and diesel fuel, while transportation and warehousing costs have fallen by nearly 4% since June 2022 peaks.
Still, prices remain high. Consumers are still paying about 25% more for groceries, the report notes as an example.
Corporations maintain high prices by exploiting cost shocks caused by events such as the Ukraine war and coordinating price hikes, said Isabella Weber, a University of Massachusetts Amherst economist who was not part of the paper.
The shocks create an environment in which it is safe for firms to increase prices as they expect their competitors to do the same, said Weber.
“This is a form of implicit collusion,” she said. “Firms do not even need to talk to one another to know that a cost shock is a great time to raise prices. But when costs fall, price-setting firms do not have any incentive to decrease prices.”
If no firms launch a price war, Weber added, then companies “hold the line” on prices and widen margins. She pointed to food processors as an example.
The paper zooms in on the diaper industry, of which Procter & Gamble and Kimberly-Clark control 70% of the domestic market. Diaper prices have increased by more than 30% since 2019 from, on average, $16.50 to nearly $22.
--------------------------------------------------------------------------------
It's not just the US: Corporate profits are keeping inflation high in Europe too
https://www.businessinsider.com/corporate-profits-keep-inflation-high-in-europe-and-america-imf-2023-7
Juliana Kaplan Jul 6, 2023, 6:00 AM MDT
The economic downturn the world has been bracing for still hasn't arrived, labor markets are still booming, and yet the economy feels bad. You can blame inflation for that one — and how much money companies are making off of you.
It's what some economists have termed "greedflation," as companies have found that customers are willing to tolerate ever-increasing prices amid pandemic-era economic conditions like supply chain issues and scarcity. In that model, companies pass along their increased costs to consumers, and then still make additional profits on top of it.
And it's not just an American issue: Higher prices in Europe are largely powered by corporate profits, according to a new working paper from the International Monetary Fund, and profits need to normalize before prices can truly drop.
IMF researchers Niels-Jakob Hansen, Frederik Toscani, and Jing Zhou find that domestic profits in Europe account for a little under 45% of inflation in the Euro Area, while higher wages — which have been pointed to as a primary driver of inflation — account for just a quarter of inflation.
"The growing literature on the role for profits is generally aligned with our finding that firms have fared relatively better than workers even in the absence of a large increase in markups," the IMF authors write.
Inflation is not solely caused by soaring profits, but the working paper finds that profits rising well above pre-pandemic trends have made their mark on European inflation. According to the IMF research, both labor costs and profits rose "significantly" above their recent averages — but profits made up a greater part of that. In particular, industries like trade, food, and travel saw their profits skyrocket, and contribute more to rising costs......................................................
--------------------------------------------------------------------------------------------------------------------------------------------
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Two people you should never trust:
A religious leader who tells you how to vote.
A politician who tells you how to pray.
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