New York
CNN
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Some progressives have often blamed corporate greed for fueling the high cost of living Americans are fed up with.
However, new research from the Federal Reserve Bank of San Francisco casts doubt on the greed theory.
Economists at the SF Fed found that rising corporate prices were not a major catalyst for rising inflation from 2021 to 2022.
Fed researchers found that some companies exercised pricing power by raising prices above their production costs, a gap known as markup.
For example, markups increased for gasoline, cars and other goods in 2021. Likewise, there were markups for repairs, general merchandise, laundry, personal care and other services, according to the Fed.
Of course, the inflation crisis was not limited to a few key sectors. It was all over the economy.
When they scaled back and looked at markups across the economy, the Fed’s economists found little evidence that rising prices were the main culprit.
Aggregate receipts, the most important measure of overall inflation, have remained essentially unchanged since the recovery began, the paper concluded. Rising prices have not been the main driver of the recent rise and subsequent decline in inflation during the current recovery.
In fact, the SF Fed found that the path of collective markdowns over the past three years is not unusual compared to previous recoveries.
It pisses them off and it pisses me off
This contradicts the argument of some progressives, including Sen. Elizabeth Warren, who for years has refocused inflation argument on corporate greed.
Right now prices have gone up 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 issue. It is not simply an inevitable economic force of nature. It is greedy and in some cases it is completely illegal.
Recently, President Joe Biden has named corporate greed as a reason prices remain 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 shrinking size of Snickers bars and other food products. It’s 20% less for the same price. This is corporate greed. This is corporate greed. And we have to face it. And that’s what I’m working on.
In February, Biden said there are still too many corporations in America ripping off people. Price gouging, junk tariffs, greed, contraction.
America is tired of being played for scumbags! Biden said.
Although the paper did not directly mention corporate greed, shrinking inflation or Biden, the research underscores the argument that greed drove early inflation.
White House spokesman Jeremy Edwards told CNN in a statement that the study supports Biden’s argument that record profits are driving up inflation in some sectors, such as gas and general merchandise.
Those notes should have been reversed as we recovered from the pandemic, the fact that they did not mean that prices could fall if corporate profits came back to earth, Edwards said. President Biden has repeatedly called on big corporations to pass on their record profits to their customers by cutting prices. And he is confronting corporate scams like hidden garbage fees that cost families billions of dollars a year. The president will continue to call for corporate disruption and fight to keep money in Americans’ pockets.
The debate comes as inflation remains a major frustration for Americans and an important political liability for Biden ahead of the November election.
Consumer sentiment, a metric closely watched 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 caused in part by worries about inflation and interest rates.
Greg Valliere, chief US policy strategist at AGF Investments, said the White House is desperate to blame someone or something for inflation.
Blaming greedy corporations is just looking for scapegoats, Valliere told CNN. There’s no recipe here that would have a big impact quickly, other than the Fed reluctantly raising interest rates, an option that, moreover, is not out of the question.
Many economists blame the recent rise in inflation on more traditional factors, namely higher production costs linked to demand fluctuations and the supply problems of the Covid era.
Of course, inflation has improved dramatically over the past two years.
After peaking at 9% in June 2022, annual consumer price index (CPI) inflation has moderated to the low-to-mid 3% range.
However, progress in the fight against inflation has stalled recently, and data from the past three months has shown that prices have risen more than expected. And inflation remains well above the Federal Reserve’s 2% target. The so-called last mile of getting inflation back to normal has proven to be difficult.
That situation has prevented the Fed from giving Americans a break from high borrowing costs, which remain at two-decade highs.
Federal Reserve Chairman Jerome Powell reiterated on Tuesday that it looks like it will take longer for us to have confidence that inflation is coming down to 2% over time.
Although the SF Fed report pokes holes in the greed argument, other research has been more mixed.
For example, the progressive advocacy group Groundwork Collaborative recently argued that corporate profits drove 53% of inflation during the second and third quarters of 2023. This report found that corporate profits were to blame for 34% of inflation since the start of Covid-19.
There’s a reason most Americans blame corporate greed for high prices, and that’s because they know high prices when they see it, Caroline Ciccone, president of the progressive watchdog group Accountable.US, said in a statement. It just doesn’t add up when corporations enjoying record profits, enriching investors and giving their CEOs huge bonuses, claim that skyrocketing price increases were out of their control. They might have passed on some success to consumers in the form of stable and reasonable prices, but many chose to take advantage 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 recovery.
However, the same Kansas City Fed paper noted that this is not unusual, and corporate profits contributed even more (59% on average) to inflation during previous economic recoveries.
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