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

New York
CNN
—

Some progressives have often blamed corporate greed for the high costs of living that Americans have grown tired of.

Until now New search From the Federal Reserve Bank of San Francisco casts doubt on the theory of greedy inflation.

Economists at the Federal Reserve Bank of San Francisco found that corporate price manipulation was not a primary driver of higher inflation in 2021-2022.

Fed researchers found that some companies exercised pricing power by raising prices above production costs – a gap known as profit margins.

For example, profit margins for gasoline, automobiles and other goods rose in 2021. Likewise, there was an increase in profit margins for repair, general merchandise, laundry and personal care and other services, according to the Federal Reserve.

Of course, the inflation crisis was not limited to a few key sectors. It was on the economic level. (Annual inflation rate It decreased slightly in April(But it's still well above the Fed's 2% target.)

When they zoomed out and looked at profit margins across the economy, economists at the Federal Reserve Bank of San Francisco found little evidence that price manipulation was the main cause.

“Gross profit margins – the most important measure of overall inflation – have remained essentially flat since the beginning of the recovery,” the study concluded. “Rising profit margins have not been the main driver of the recent rise and subsequent decline in inflation during the current recovery.”

In fact, the Federal Reserve Bank of San Francisco found that the path of collective rate premiums over the past three years is “not unusual compared to previous recoveries.”

“It makes them angry and it makes me angry.”

This flies in the face of the argument of some progressives, including Sen. Elizabeth Warren, who has done so for years Refocusing inflation An argument about corporate greed.

“Right now prices have gone up Pump, in the supermarket, and online. Meanwhile, energy companies, grocery companies and online retailers are reporting record profits. Warren said In December 2021. This is not just an epidemiological problem. It is not just an inevitable economic force of nature. It's greedy and, in some cases, downright illegal.

More recently, President Joe Biden has cited corporate greed as a reason prices remain high.

“If you look at what people have, they have money they can spend. It makes them angry and it makes me angry that you have to spend more,” Biden said. CNN's Erin BurnettPointing to the shrinking size of Snickers bars and other food products. “It's 20% less at the same price. This is corporate greed. This is corporate greed. And we have to deal with it. That's what I'm working on.”

In February, Biden said: “There are still too many companies in America that are ripping people off. Price gouging, unwanted tariffs, rapacious inflation, deflation.”

”America – we're tired of being played for fools!” Biden said.

Although the paper did not directly mention corporate greed, deflation, or Biden, the research undermines the argument that it was inflationary greed that led to early inflation.

White House spokesman Jeremy Edwards told CNN in a statement that the study supports Biden's argument that “record profits increase inflation in some sectors, such as gas and general merchandise.”

“These increases should have reversed as we recovered from the pandemic — and the fact they haven’t means prices could fall if corporate profits come back down to earth,” Edwards said. “President Biden has repeatedly called on big companies to pass on their record profits to their customers by lowering prices. He deals with corporate scams such as hidden junk fees that cost families billions of dollars annually. “The President will continue to denounce corporate fraud and fight to keep money in Americans' pockets.”

This discussion comes as inflation remains a source of great frustration for Americans — and a major political liability for Biden ahead of the November election.

Consumer sentiment, a measure closely monitored by the White House. It unexpectedly fell to a six-month low At the beginning of May. This was the largest single-month decline in nearly three years, a deterioration driven in part by concerns about inflation and interest rates.

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

“Blaming greedy companies is just looking for scapegoats,” Valliere told CNN. “There are no prescriptions here that would have a significant impact quickly, other than the Fed reluctantly raising interest rates — an option that, incredibly, is not out of the question.”

Many economists blame the recent rise in inflation on more traditional factors: rising production costs linked to fluctuations in demand and supply problems in the Covid era.

To be sure, inflation has improved significantly over the past two years.

After peaking at 9% in June 2022, annual inflation measured by the Consumer Price Index has fallen to a low-to-medium 3% range.

However, progress in fighting inflation has stalled recently and data for the last three months showed prices rising more than expected. Inflation remains well above the Fed's 2% target. The so-called last mile to bring inflation back to normal has proven difficult.

This situation has prevented the Federal Reserve from giving Americans a break from high borrowing costs, which remain at their highest levels in two decades.

Chairman of the Federal Reserve Jerome Powell confirmed On Tuesday, “it looks like it will take longer for us to become confident that inflation will fall to 2% over time.”

Although the San Francisco Fed report poked holes in the greedy inflation argument, other research has been more mixed.

For example, the progressive advocacy group Groundwork Collaborative recently argued Corporate profits led to 53% of inflation during the second and third quarters of 2023. This report found that corporate profits were responsible for 34% of inflation since the beginning of Covid-19.

“There's a reason most Americans blame corporate greed for rising prices, and that's because they know price gouging when they see it,” said Carolyn Ciccone, president of the Progressive Watchdog Group. United StateHe said in a statement. “It simply doesn't make sense when companies enjoying record profits, enriching investors and giving their CEOs huge bonuses claim that creeping price increases were beyond their control. They could have passed on some success to consumers in the form of stable, reasonable prices, but many of them chose Benefit again and again.

Last year, the Federal Reserve Bank of Kansas City found just that Corporate profits contributed 41% to inflation During the first two years of Covid recovery.

However, the same Kansas City Fed paper noted that this is not unusual and that corporate profits have contributed more (59% on average) to inflation during previous economic recoveries.