We routinely delve into the various factors that drive inflation: the rise in cost of raw materials and labor, the cost of energy to make things and the cost of transport to ship them, supply chain issues, and even the War in Ukraine. But there is another factor that is often overlooked: corporate profits. When inflation is high, companies may raise their prices to pass the increased prices they pay onto consumers, without cutting into their own profits. And that’s understandable. And, says The New Yorker’s Sheelah Kolhatkar, to be expected – “capitalists will do what capitalists will do.” But sometimes – without us fully registering that they are doing it – companies take advantage of high inflation by using it as cover to mark up products even higher than what would be necessary to recoup their higher costs.
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In recent years, discussions on inflation have primarily revolved around factors like government spending, central bank policies, and consumer demand. However, there is a rarely discussed inflation driver that plays a crucial role in shaping the economy: corporate profits. While this factor may not receive as much attention, it is essential to understanding the overall inflationary pressures and their implications.
Corporate profits refer to the financial gains earned by companies after deducting operating expenses, taxes, and other costs of doing business. When examining the relationship between corporate profits and inflation, it becomes evident that these two factors are interconnected.
One primary way in which corporate profits contribute to inflation is through increased pricing power. When businesses experience higher profits, they often have the ability to raise prices without significantly impacting demand. This is especially true in industries with limited competition, as companies can leverage their dominant position to increase prices and pass on higher costs to consumers.
Additionally, corporate profits influence inflation through their impact on wages. When businesses are performing well and generating higher profits, they are more likely to offer higher wages to attract and retain skilled workers. As employee compensation increases, purchasing power rises, resulting in a higher demand for goods and services. This higher demand, in turn, leads to increased consumer spending and price levels.
Moreover, corporate profits can indirectly affect inflation through their influence on investment and capital expenditure. When businesses experience robust profit growth, they are more inclined to invest in expanding operations, developing new products, or upgrading technologies and equipment. These investments boost economic activity, creating more jobs, stimulating consumer spending, and ultimately increasing price levels.
Furthermore, corporate profits impact inflation expectations and market sentiment. When investors perceive that companies are making substantial profits, they become more optimistic about the overall health of the economy. This optimism can drive up stock prices, increase consumer and investor confidence, and result in higher spending and inflation.
It is worth noting that corporate profits do not always contribute to inflation. In certain situations, such as during economic recessions or sluggish growth periods, lower corporate profits may even exacerbate deflationary pressures. Reduced profits can lead to cost-cutting measures, dampening consumer spending, and causing a downward spiral in prices. Therefore, the relationship between corporate profits and inflation is not linear and can vary depending on the broader economic context.
Understanding the role of corporate profits in inflation is vital for policymakers, economists, and investors. Overlooking this factor could lead to a skewed analysis of inflationary pressures and ineffective policy responses. As corporate profits continue to evolve in an increasingly globalized and interconnected world, it is crucial to include them in discussions surrounding inflation dynamics.
In conclusion, while corporate profits may be a rarely discussed inflation driver, their importance should not be overlooked. Higher corporate profits provide businesses with the ability to raise prices, influence wages, stimulate investment, and shape market sentiment. A comprehensive understanding of these dynamics is crucial for a holistic analysis of inflationary pressures and effective policymaking.
The system is rigged and must change.
Ever since Reagan "Let the hogs totally loose" in the 80s; This country has gone from "not great" TO HORRID NIGHTMARE!
"Stop buying so much stuff". Lol. Yeah good luck with that… Personal saving are down, credit card balances are high and consumer spending has never been higher. On top of the fact that our country doesnt even produce most of the crap. Asking people in the US to stop spending unnecessarily is like asking a junkie to stop doing drugs.
As a foreigner who lived through the entire duration of zero covid for the past 3 years in China, this is by far the most objective commentary I’ve seen on YouTube to date. Economists and business leaders are voicing concerns at the start of 2023 that the year could be a difficult one. JPMorgan Chase & Co. Chief Executive Jamie Dimon said Tuesday that the Federal Reserve may need to raise interest rates to 6% to fight inflation, higher than the peak level between 5% and 5.5% in 2023 that most Fed officials penciled in after their December meeting. Although I read an article of people that grossed profits up to $500k during this crash, what are the best stocks to buy now or put on a watchlist
That is the reason less regulations and corporate backed Political Action Committees don’t work.
The idea that consumers will buy less has no validity. Groceries are essential items and there is not enough competition in that market. A result of deregulation brought on by political donations to politicians who value the money more than the people.
America has become a government that works for the corporations.
You'd never hear about this on Faux News for sure.
When is someone going to finally come out and just say it, plain and simple? America is and has been, for the last 150 years, by and for the super-rich and their understudies the privileged class, who between them have 75% of the wealth, own or influence a significant number of major politicians, and are willing to do whatever it takes to keep it that way. The way things are is no accident, it's a fixed game.
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Why is no one suing them?
I thought this is what democracy is all about. Blaming inflation on corporate profit is socialistic
Nobody is mentioning rise in wages,,,raises inflation to cover it.
There is corporate collusion. That's why there are fewer companies than you'd expect absorbing some of the costs and marketing on that. Costco is apparently doing that and a bank, Citi I believe, is trying to pressure them to raise their prices. As I recall, Costco received similar pressure in the past when they were paying their workers above "market rate". It's almost like they don't want people to see what is actually possible. Kind of like how civilized countries did monthly pandemic checks and suddenly there was no acknowledgement of the existence of such countries. But republikkkans will fear monger about dreaded "wait times" for non-essential surgeries in Canada. Other countries only exist when it is time to fear monger. And those monthly pandemic checks also hurt the capitalist republikkkan narrative of inflation. Most of those countries experienced the same inflation we did, which debunks the whole thing. Any inflation above that was a direct result of russia's nonsense invasion of Ukraine.
For the past 6 years, my husband and I take turns on who gets to eat that day, so our son gets 3 meals a day. I pay for things in pennies, I plan out any driving to conserve gasoline, and I try to mend clothing as much as possible.
We recently had our SSI cut by 75% because we are too poor and our income level doesn't chart. My husband is a government employee and we are literally starving.
It’s also shrinkflation. Every grocery product has gone up and diminish the size and content. Corporate greed is crazy. How many billions do they need?
The rich do as they please because they are above the law the poor go to jail and toe the line look at TRUMP and his clown car full of people that think January 1st the will take over the house and all this will go away but the poor will still be poor
Windfall Profit Taxes – NOW!
“Socialism never took root in America because the poor there see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”
– John Steinbeck
Evil has no boundaries.
I just let God provide for my family.
I do the possible and let Him do the impossible.
They have gone a lot more than a little too far. People can boycott their products.
We can just look at the numbers, profit has gone up with inflation, period. Not just revenue, PROFIT. Y'all haven't been talking about it but plenty of independent media has, and it's not just A driver of inflation, it is the MAIN driver of inflation at this point. How can y'all not see this or cover it appropriately?
First off lets set the record strait…….THIS IS THE #1 Factor of the inflation boom PERIOD.
It is very easy to see, this Country shut down for Covid, have you EVER heard of white collar America standing for loss or break even? Simply put into numbers
Pre Pandemic
$1.00 of sales = $.30 gross profit
Post Pandemic
$1.00 of sales = $.35 gross profit
NOW look at it this way
Pre Pandemic
Cost of the $1.00 in sales was $.85 and it was sold at 30% thats $.15 in net profit
Post Pandemic
Cost of the $1.00 in sales is now $.87 and it was sold at 35% thats $.22 in net profit
So lets calculate per $1,000,000
Pre Pandemic $1,000,000 x $.15 + $150,000
Post Pandemic $1,000,000 x $.22 = $220,000
The reality is the more it costs the more $ they make WITHOUT increasing their profit %, now increase your profit % and you are double dipping. The Rich get Richer and the Poor stay Poor….Thats Corporate America.
and the Congress is out of order for the next 2 years…. hopefully the US survives.
What portion of corporate profits are spent on politicians? End Citizen's United and close off the Black Money drain.
Robert Reich has been talking about big oil and corporate America's extortion for months.
gee you just explained why gas went over 5 bucks a gallon
No, the only solution isn't for people to not to buy things.
Corporations could be taxed more.
We can use anti trust laws to break up oligopolies and monopolies. We can make corp buy backs illegal. We can change the composition of boards to include worker and community representation. We can make it illegal for Executives to be compensated primarily with stocks.
So there are many things which can be done.
We are choosing not to do them.
And I can guarantee you, dispute all the campaigning (i.e, lying) that the Republicans have been doing about inflation to get elected, they will not lift a finger in this regard!
With all the labor strikes that are going on, consumers can decide to go on strike as well.
Inflation: What corporations do when a middle class starts to form.
Who doesn't know that greedflation is the real problem? Like I get inflation is real. It's a fact of life. Prices shouldn't be jumping this much
So, hooray! Wage increase. Oh! Stop! Utility increases, grocery increases, electronics increases, rent increases. News! Flash. You are all still at the same level. The savings will not happen because they have raised prices again. Example. My landlord went up on rent a few months ago, well we gett a 7-8% increase in social security starting January. I get another rent increase starting January taking that increase, not counting other increases.
Mainstream media companies are corporations
Of course it's "rarely covered"
Watch something like TYT or Farron Balanced and it's covered alllllllll the time
Simply put. ( Greed ). They are not going to pay laborers more and lose profit.
Corporate media reporting on this? What?! Did someone get into the booze over at MSNBC, started feeling sentimental about us plebs?
Sounds like Corporate price gouging without a hometown event or natural disaster under inflation
Shhhh…..How DARE you attack the basic precept of capitalism!!!!