Inflation caused by corporate greed: a mystery: NPR

Who is to blame for inflation? Some say greedy corporations are to blame.

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Peter Ruck/BIPs/Getty Images

Who is to blame for inflation? Some say greedy corporations are to blame.

Peter Ruck/BIPs/Getty Images

Everyone accepts that inflation is happening. What they disagree on is the whodunit.

The latest figures show that prices have increased by 7.7% compared to 2021. But prices for some products, such as eggs, health insurance and gasoline, are rising faster than that.

Inflation can be an unstoppable enemy: quietly taking a chunk out of our savings and paychecks and stealing everything from vacations to our favorite meals.

But who allowed this thief to destroy the US economy? What is the source of inflation? Let’s explore the clues and potential culprits.

Prime suspects

The main suspects differ along party lines. Many economists and politicians on the right say inflation is caused by government spending and various aid programs (stimulus checks, student loan forgiveness, Biden in the White House with public money).

Many economists and politicians on the left point to the war in Ukraine (for driving up oil prices, for bleeding everything), as well as greedy companies, although many of them supply chain woes and rising costs drive record profits. (Corporations, in aisle 4, with price gun.)

The smoking gun price

As with any good mystery, we watch our clues. In the case of corporate greed, there are some pretty compelling ones.

First, corporate profits: This year they hit an all-time high. Many companies saw profits hit record highs.

This naturally raises some eyebrows. If companies are struggling so much with costs and supply chains, where are all those billions in profits coming from?

All this screaming about rising corporate costs may be crocodile tears as companies raise prices for all of us.

Corporate confessions?

Rakeen Mabud is a senior economist at the progressive think tank Groundwork Collaborative. “Companies are taking a spoonful of sugar … off the backs of families who are really struggling to get by,” he said.

Mabud has attended dozens of corporate earnings calls and says he often hears CEOs bragging about how much they can raise prices.

Grocery giant Kroger has made billions in profits over the past few years. In a recent call with investors, Mabud CEO Rodney McMullen was heard saying, “We always consider a little bit of inflation good in our business, and we expect to be able to get through that.”

Revenues at AutoZone, which sells auto parts and accessories, rose 13%. CFO Jamere Jackson called inflation “a little bit of our friend in terms of what we’re seeing in terms of retail prices.”

Hostess has seen its earnings grow by more than 15% this year. CEO Andrew Callahan said: “We’re also seeing a lot of consumer disruption and they haven’t fully recognized or absorbed the pricing.”

Are you Twinkies?

Murder on the Competition Express

Adding to the case against corporations is a lot of the consolidation we’ve seen in corporate America over the past 40 years.

Case in point: There are four companies that control about 80% of the U.S. beef and poultry market.

This kind of consolidation can mean that companies don’t have to compete as much for our business, and there’s less pressure to keep prices down.

Meat companies settled litigation over price-fixing just this year, raising concerns that a proposed merger between grocery giants Kroger and Albertsons would lead to higher prices for many consumers.


Of course, every suspect needs an alibi, and in the case of inflation, corporations have strong enough.

First, companies actually saw their costs increase.

The price of raw materials has increased throughout the year. They go up at about the same rate as the prices we pay in stores.

Actually a little more. Wholesale prices (the cost of raw materials that companies buy to make the products they sell to us) rose more than 8% compared to consumer prices, which rose 7.7% last year.

This is strong evidence that many of the higher prices we pay at the store are the higher cost of raw materials passed on by manufacturers and retailers.

The twist

Justin Wolfers, an economist at the University of Michigan, says that corporate greed is a red herring and that companies are not the source of inflation.

“My friend and economist Jason Furman says, ‘Blaming inflation on greed is like blaming plane crashes on gravity,'” says Wolfers. “Technically correct, but it misses the point entirely.”

Wolfers says companies always try to charge as much as they can. In fact, the only reason we all don’t pay $800 for a pair of socks or a cheeseburger is simply another form of greed: competition.

“That greed forces them to offer lower prices because they’re trying to outbid their competitors,” says Wolfers.

But what has changed?

So why are prices rising now? Obviously, something has changed.

Wolfers says most companies have two main costs: raw materials and employee wages. Raw materials, as we have seen, have become much more expensive.

Wages are another story.

So far this year, wages have risen about 5%, compared to prices that have risen 7.7%.

Companies are not raising wages as fast as they are raising prices. Wolfers believes that delay is where some of these corporate profits come from.

“Most economists are a little puzzled that wages haven’t gone up a bit,” Wolfers says. And it’s confusing. After all, workers have more power than they have in decades. Why aren’t they negotiating for more?

Wolfers suspects they are, in fact, negotiating, but not always for more money. There may be an option to work remotely instead.

For many workers, flexibility and other benefits were more valuable than money, so companies could get away with offering low wages even as they competed for workers.

A crime of opportunity

Still, Wolfers thinks wages lagging behind prices won’t last long.

With prices rising, unemployment low and many companies competing to hire, workers are likely to push harder for higher wages. And companies will likely have to pay to retain and attract talent.

As companies start paying more wages, those record profits that CEOs brag about will likely trickle down into workers’ wages.

“What happens in the interim is that there’s some money that we can hope to go to the employees,” Wolfers explains. “But instead it ends up in the boss’s pocket.”

Wolfers predicts that corporate profits will begin to return to normal levels as wages rise. But will the prices?

And the killer…

As it turns out, consumers may be to blame for the inflation mystery. At least we were helping. “Inflation is driven by demand,” says Wolfers.

Despite inflation, demand hasn’t really died down. Companies raise prices and we pay them. In fact, costs are rising along with prices in many parts of the economy.

We don’t necessarily buy more because we have more money. Our collective savings are dwindling and household debt is starting to rise. It is possible that we are spending money that we do not have to keep up with rising prices.

This is likely not sustainable. And when our buying slows, Wolfers says, companies will start cutting prices to entice us to buy: Prices will fall and inflation will fall. But until demand decreases, companies will raise prices as much as they can. This is elementary.

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