A recent report by the progressive Groundwork Collaborative thinktank has revealed that high corporate profits are a significant driver of ongoing inflation in the US. The report claims that companies continue to keep prices high despite a drop in their inflationary costs, leading to a substantial impact on consumer prices.
According to the report, corporate profits accounted for approximately 53% of inflation during the second and third quarters of last year, marking a significant increase compared to the 40 years prior to the pandemic. This finding sheds light on the growing influence of corporate profits on inflationary trends.
The study, based on data from the Bureau of Economic Analysis and National Income and Products Accounts, indicates that while prices for consumers rose by 3.4% over the past year, input costs for producers only increased by 1%. This discrepancy raises concerns about the reluctance of corporations to pass on their savings to consumers despite experiencing reduced costs.
Liz Pancotti, a strategic adviser at Groundwork and co-author of the report, emphasized the substantial decrease in costs for corporations and highlighted their failure to transfer these savings to consumers. This observation underscores the disparity in the treatment of increased costs versus reduced costs by corporations.
The report’s findings have sparked a debate about the sources of inflation, with progressive economists attributing it to corporate profits, often referred to as ‘greedflation,’ and supply chain issues. In contrast, conservative economists have pointed to government stimulus cash and high wages as primary contributors to inflation.
Notably, the report delves into corporate earnings calls, revealing executives’ boasts about maintaining high prices and expanding profit margins as input costs decrease. These revelations have raised concerns about the practices of corporations and their impact on consumer prices.
Amidst these findings, the Federal Reserve has implemented significant interest rate hikes, marking the highest point in 20 years. However, the report questions the necessity of further interest rate hikes and advocates for stronger policies to address ‘corporate profiteering’ as a more effective solution to inflation.
In 2021, inflation surged due to rising labor costs and supply chain disruptions stemming from the pandemic and the Ukraine war, further intensifying the debate surrounding the underlying causes of inflation.
