Most businesses cite inflation as the cause of rising prices. Inflation is real. However, record profits are leading some to question the role of business in fueling inflation.
A corporate and special interest watchdog group, accountable.us, reports that the top 10 retailers have raked in record profits over the last two years while raising prices.
The report says these companies have increased profits by $24.6 billion during the pandemic. In addition, the report shows a $45 billion increase in shareholder payouts last year.
Back to the Future
Last year, consumer prices rose 7.5 percent, according to the Commerce Department. At the same time, pre-tax corporate profits increased 25 percent. In addition, the overall profit margin for non-financial corporations was above 13 percent every quarter. Only one quarter in the last seven decades has reached that mark.
Consumer Spending Rises
The Gross Domestic Product (GDP) decline 1.4 percent for the first quarter, the Bureau of Economic Analysis reported Thursday. An increased trade deficit and decreases in private inventory spending were cited as causes for the decline.
The most positive aspect of the report was the 0.7 percent rise in consumer spending.
“The moral of the story is that the Omicron wave, the war in Ukraine and new lockdowns in China were more costly for growth abroad than they were at home,” Diane Swonk, chief economist for the accounting firm Grant Thornton told the New York Times.. “Domestic spending was remarkably resilient. It actually accelerated.”
So Will Prices
The rosey corporate picture for consumer spending has led to projections of still higher prices by the National Retail Federation (NRF). The trade group expects prices will climb 6 to 8 percent.
“NRF expects retail sales to increase in 2022, as consumers are ready to spend and have the resources to do so,” NRF President and CEO Matthew Shay said. “We should see durable growth this year given consumer confidence to continue this expansion, notwithstanding risks related to inflation, COVID-19 and geopolitical threats.”
Profits Or Price Gouging
Where the NRF and many corporate executives see consumer confidence, others see consumer desperation and corporate greed.
In fact, some corporations have been open about their strategies to raise prices.
TJX is the parent company of TX Maxx, Marshalls, and other discount retailers. CEO Ernie Herman told investors his firm has a “strategy to surgically raise retail [prices] on select items is well underway, and we believe it is working very effectively.”
“This isn’t about inflation,” Sen. Elizabeth Warren D-MA said on PBS. “This is about price gouging.”
With that in mind, Sen. Bernie Sanders, I-VT has introduced a bill to tax windfall profits. The bill is reminiscent of laws enacted during World War II to keep businesses from making excess profits from the war.
“When corporate profits are at their highest levels in nearly 50 years and companies are showering their shareholders with billions in new benefits over the last year, it raises serious questions whether industries like retail have had to hike prices on families to such excessive degrees,” says Kyle Herrig, president of Accountable.US. “ How can any company that’s raking in billions upon billions more than the year before honestly say that the market forced them to dig so deep into consumers’ pockets?”
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Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their two cats. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.