Do you think corporate greed is the main cause of inflation? think again

New York

Some progressives have often blamed corporate greed for fueling the high cost of living that Americans are fed up with.

As yet new research The Federal Reserve Bank of San Francisco has cast doubt on the greed inflation theory.

SF Fed economists found that corporate price increases were not the primary catalyst for inflation growth from 2021 to 2022.

Fed researchers found that some companies exercised pricing power by raising prices above their production costs – a difference known as markup.

For example, markups for gasoline, cars and other goods increased in 2021. Similarly, markups for repairs, general merchandise, laundry, personal care and other services increased, according to the Fed.

Of course, the inflation crisis was not limited to just a few key sectors. It was economy-wide.

When zooming out and looking at markups across the economy, SF Fed economists found little evidence that price increases were the main culprit.

The paper concluded, “The overall markup – the more relevant measure for overall inflation – has been essentially stable since the beginning of the recovery.” “Rising markups have not been the main driver of inflation decline during the recent boom and current recovery.”

In fact, the SF Fed found that the path of collective markups over the past three years is “not unusual compared to past recoveries.”

‘It makes them angry and it makes me angry’

This runs contrary to what some progressives, including Senator Elizabeth Warren, have argued for years Refocus on inflation Arguments on corporate greed.

“Prices are up right now At the pump, in the supermarket, and online. “At the same time, energy companies, grocery companies and online retailers are reporting record profits.” Warren said In December 2021. “This is not just a pandemic issue. It is not merely an inevitable economic force of nature. This is greed—and in some cases, it is completely illegal.”

More recently, President Joe Biden has cited corporate greed as the reason for prices remaining high.

“If you look at what people have, they have money to spend. They are angry about this and I am angry that you have to spend more,” Biden said. CNN’s Erin Burnett, pointing to the shrinking size of Snickers bars and other food products. “It’s about 20% less for the same price. That’s corporate greed. That’s corporate greed. And we have to deal with it. And that’s what I’m working on.”

In February, Biden said that “there are still too many corporations defrauding people in America. Price gouging, junk fees, greed inflation, shrink inflation.

”America – We’re tired of being played for fools!” Biden said.

Although the paper did not directly mention corporate greed, shrink inflation, or Biden, the research underpins the argument that greed inflation drove the initial inflation.

White House spokesman Jeremy Edwards told CNN in a statement that the study supports Biden’s contention that “record profits are driving inflation in some sectors like gas and general merchandise.”

“As we recover from the pandemic, these markups should have been reversed — the fact that they haven’t means that prices can go down if corporate profits come back down to earth,” Edwards said. “President Biden has repeatedly called on big corporations to pass their record profits on to their customers by lowering prices. And he’s running corporate scams, like hidden junk fees, that cost families billions of dollars a year. “The President will continue to confront corporate scandals and fight to keep money in Americans’ pockets.”

The debate comes as inflation remains a major frustration for Americans — and a key political liability for Biden ahead of the November election.

Consumer sentiment, a metric closely tracked by the White House, unexpectedly reached a six-month low In early May. It was the biggest one-month decline in nearly three years, driven in part by concerns about inflation and interest rates.

Greg Valliere, chief US policy strategist at AGF Investments, said the White House is “desperate to find someone to blame for inflation.”

“Blaming greedy corporations is just looking for a scapegoat,” Valliere told CNN. “There is no prescription here that would have any major immediate impact, other than the Fed reluctantly raising interest rates – an option that, incredibly, is not out of the question.”

Many economists blame the recent inflation surge on more traditional factors, namely higher production costs linked to demand fluctuations and the Covid-era supply problem.

Certainly, inflation has improved dramatically over the past two years.

After peaking at 9% in June 2022, annual inflation as measured by the Consumer Price Index (CPI) has moderated to the low to mid 3% range.

However, progress in the inflation battle has stalled recently and data over the past three months has shown that prices have risen more than expected. And inflation remains well above the 2% targeted by the Federal Reserve. The so-called final step in bringing inflation back to normal levels has proven difficult.

The situation has prevented the Fed from providing relief to Americans from increased borrowing costs, which remain at the highest levels in two decades.

Federal Reserve Chairman Jerome Powell reiterated On Tuesday it seemed “it will take longer for us to be confident that inflation is coming down to 2% over time.”

Although the SF Fed report pokes holes in the greed inflation argument, other research has been more mixed.

For example, the progressive advocacy group Groundwork Collaborative recently argued Corporate profits drove 53% inflation during the second and third quarters of 2023. That report found that corporate profits were responsible for 34% of inflation since the onset of COVID-19.

Caroline Ciccone, president of the progressive watchdog group, said, “Most Americans blame corporate greed for high prices, and that’s because they know a price gouging when they see one.”, said in a statement. “It doesn’t matter when corporations are enjoying record profits, enriching investors and paying huge bonuses to their CEOs and claiming that rising prices are beyond their control. They could have brought some success to consumers in the form of stable and reasonable prices, but many chose to profiteer 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 recovery from Covid.

However, the same Kansas City Fed paper states that this is not unusual and that during prior economic reforms corporate profits contributed even more to inflation (an average of 59%).


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