What's REALLY Going On With Inflation?
Americans have paid sky-high prices for basic necessities. Meanwhile, corporations have seen their profits soar and have spent billions in stock buybacks. We dig into corporate profiteering.
News Beat is a multi-award-winning podcast that melds hard-hitting journalism with hip-hop to inform, educate, and inspire. In this episode, we pose a seemingly simple question: What’s really going on with inflation?
As the media obsessed over record inflation for much of the year, major corporations were publicly celebrating their recent rise in profits and admitting in earnings calls that they were raising prices on consumers—effectively price-gouging Americans. This boon to corporate coffers also comes amid increased use of stock buybacks to funnel money back into the hands of board members and executives—money that could be used to drive down costs for consumers, research and development, or, we’re just spit-balling here, invest in workers, perhaps? A practice that only decades earlier was considered an illegal form of market manipulation, is now all too common. Even The New York Times does it—so much for having faith in your news sources. This is the story of corporate profiteering on a massive scale.
Why We Covered This Topic
Since early 2021, Americans have been feeling the pinch at the grocery checkout counter, the pump, and for shelter—basically anywhere we exchange currency for goods or services. Over the summer, inflation reached a four-decade high when consumer prices peaked at 9.1 percent, fueled, in part, by sky-high gas prices. At the same time, corporations have seen their profits soar.
In August, Bloomberg reported that profit margins haven’t been this wide since the 1950s and that firms have “comfortably been able to pass on their rising cost of materials and labor to consumers.” How are Americans dealing with these rising costs? For one, they’re increasingly turning to credit cards to get by. According to CNBC, credit card debt reached $930 billion in the third quarter of 2022, and balances on those cards spiked to levels we haven’t experienced in 20 years.
Lawmakers on the little-known Subcommittee on Economic and Consumer Policy in November released a staff report that analyzed the “key role played by companies that have hiked prices and increased profits at the expense of American consumers.” In the report, which was titled “Power and Profiteering: How Certain Industries Hiked Prices, Fleeced Consumers, and Drove Inflation,” lawmakers accused corporations of using the “cover of inflation to raise prices excessively, resulting in record profits and profit margins.”
Some of the numbers coming out of corporate offices are simply stunning. According to the staff report:
Three of the five largest companies in the shipping industry saw profits
rise by 29,965%;
The two largest public companies in the rental car industry enjoyed a
profit increase of 597%;
Four of the largest public companies in the meat processing industry saw
profits go up by 134%; and
Four of the ten largest public companies by market cap in the oil and gas
industry had profits rise by 62%.
There’s little debate that Russia’s invasion of Ukraine and the supply chain crisis resulting from the coronavirus pandemic have contributed to the inflation we see today. But one of the most under-reported aspects of this inflationary period has been the brazen corporate profiteering that’s occurred out in the open.
We say “brazen” because, well, executives are gleefully admitting as much in public earnings calls. And the American public is seemingly none the wiser, having to navigate an unjust financial system in which corporations are allowed to price gouge consumers and use their ever-growing profits to further enrich executives and shareholders through buybacks—and it’s all happening in plain sight.
What You’ll Learn in This Episode
Corporations have been very open—celebratory, even—about their profits, even as millions of Americans have struggled to cope with rising prices due to inflation. Groundwork Collaborative, an economic think-tank based in Washington, D.C., analyzes public earnings calls and was kind enough to share some of its reporting with us. Here are just a few examples of executives boasting about their gains this year: The chief financial officer of Constellation Brands, which owns major beer companies such as Modelo and Corona, boasted that they “take as much as we can…as much pricing as we think the consumer can absorb” and “make sure that we're not leaving any pricing on the table.” The company was very pleased to report that it “funneled over $1 billion to Wall Street through stock buybacks in 2021 alone,” according to Groundwork Collaborative. In 2021, the CEO of Kroger, the supermarket giant, famously told investors: “a little bit of inflation is always good in our business.” In May 2022, the CFO of Autozone noted on a call: “And as I’ve said before, inflation has been a little bit of our friend in terms of what we see in terms of retail pricing.” You hear similar claims made across industries, including from the oil giant Shell, which boasted that its buybacks and dividends were “...the highest we've actually ever done.”
As we noted, some corporations have seen record-high profits following the recovery from the pandemic. One analysis from the Guardian, based on Securities and Exchange Commission (SEC) data, found that 100 U.S. corporations saw a nearly 50 percent increase in profits since this current wave of inflation began. The Economic Policy Institute (EPI) put it this way: “During normal times, profits account for about 13% of the price of goods and services, but since recovery from the COVID-19 recession began in the second quarter of 2020, rising profit margins have accounted for roughly 40% of the rise in prices.”
The corporate profiteering we’re witnessing is the “tip of the iceberg” one of our guests explains, noting that it’s the result of decades of economic policies that have favored the wealthy over the working class. For example, stock buybacks, once considered an illegal form of stock manipulation until deregulation in the 1980s, have been on the rise in recent years, especially since the Trump tax cuts in 2017. EPI wrote in a 2019 report analyzing Trump’s tax cuts for the wealthy: “Stock buybacks rose from $368 billion on average in 2016 and 2017 to $560 billion in 2018, an increase of more than 50 percent in a single year.” Buybacks in 2021 hit $881.7 billion—a nearly 70-percent increase from 2020.
Who We Interviewed & What They Said
Dr. Rakeen Mabud, Chief Economist and Managing Director of Policy and Research at the nonprofit Groundwork Collaborative.
I like to think about the inflation we're seeing today as really sort of the tip of an iceberg. This is an issue that has been building for a really long time because of a series of policy choices we've made over the course of decades. The reason that these companies, especially big companies, have the ability to raise prices and gouge customers the way they're doing, is because they have so much market power. And that is the direct result of policy choices we've made to allow these companies to gain so much power in our economy, to really shape the system in a way that benefits them and their shareholders over anyone else. And in a moment of crisis, what they're going to do is they’re going to take advantage of that power and use that power. And that's exactly what we're seeing in these earnings calls.
Natalia Renta, Senior Policy Counsel, Corporate Governance and Power, for the nonprofit Americans for Financial Reform.
Companies earnings and the worker share of that was more or less in tandem, and then it started shifting such that wages didn't grow along with corporate profits. So, it's the mentality of labor being a cost to be minimized, instead of workers being partners in value creation in companies. That's obviously huge for inequality. So stock buybacks definitely exacerbate economic inequality.
Here’s the full report released by the Subcommittee on Economic and Consumer Policy in November about rising corporate profits. It’s a must-read and includes insights from Dr. Rakeen Mabud, who testified during the hearing from which this paper is based.
Check out the work of Groundwork Collaborative about ending corporate profiteering. As the organization says: “Corporate profiteering and monopoly power are big drivers of price increases. Megacorporations are taking full advantage of recent crises – the pandemic, supply chain issues, and the war in Ukraine – to charge customers more and pad their profit margins. And they hold enough market power to do so without fear of losing customers to other competitors.”
Read this helpful explainer from the Economic Policy Institute about how corporate profiteering has fueled inflation.
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