Despite rising inflation, major
U.S. Corporations are reporting
record profits, as companies
pass rising supply chain costs
onto consumers.
Economics correspondent Paul
Solman explores whether
concentrated market power is
contributing to inflation.
>> Corporations are raising
prices even as they rake in
record profits.
>> Prices at the pump have gone
up, why? Let me give you a hint
senator Elizabeth Warren.
This isn't about inflation. This
is about price gouging.
>> This is a charge that pops up
in lots of places, even on my
Twitter feed. So, do the facts
justify the outrage?
Well, you've heard the standard
causes of covid inflation:
Government stimulus money;
a tight labor market driving up
wages;
clogged supply chains imports
anchored offshore.
And now, to top it off, Russia's
invasion of Ukraine goosing oil,
gas and wheat prices.
But if all this explains an
inflation rate that's just
reached 10% for businesses (the
producer price index), how come
profits have risen even more?
>> Over the past year,
companies' net margins have
risen to record highs and net
margins are expected to rise
again over the next year.
Nearly 100 of the biggest U.S.
Publicly traded companies booked
2021 profit margins that were at
least 50 percent higher than
their 2019 levels.
>> And 2019 was pre-pandemic;
the economy, solid, inflation,
low. So, why the profit hike?
>> The CEO of Kroger recently
said
>> "A little bit of inflation is
always good in our business."
>> Lindsay Owens runs a
Progressive economic think tank
that scours the earnings calls
corporations hold for stock
analysts and investors like
this one, from constellation
brands, which sells beer, wine
and spirits.
>> We're going to look at this
on a market-by-market basis,
brand-by-brand basis, and we'll
take as much pricing as we think
the consumer can absorb.
>> One of my favorite examples
is Tyson foods.
>> Purveyor of one out of every
five pounds of beef, chicken and
pork sold in the U.S.
Here's Tyson's chief financial
officer on their latest
quarterly results.
>> "Our pricing actions led to
approximately $2.1 billion in
sales and price/mix benefits
during the quarter. Which offset
the higher cost of goods sold of
$1.6 billion."
>> In other words says Owens
>> Our pricing is taking into
account both
the cost of raw materials and
the cost of labor,
but more than offsetting it. And
that more than offsetting it is
that additional profit that
they're able to bring in.
>> But profits sank when covid
hit, say companies like Tyson.
This is just making up for lost
time nothing but an extreme,
short-term business cycle.
>> Capitalism requires greed to
run.
>> Economist Noah Smith.
>> Corporations are always
greedy. Their greed dial is
always set to absolute maximum.
And the idea that ameliorating
greed would have any effect on
inflation
is wrong.
And I made fun of it by making
the following chart.
>> Smith, a liberal, mocks the
idea that newfound greed
explains the inflation surge
with a tongue-in-cheek "Greed
index" chart.
>> And I labeled the rises in
inflation as rising greed and
the drops in inflation as
falling greed.
>> Which would imply rising
corporate generosity.
>> The reason this is a joke is
because
the big drop in inflation in the
80s
would have to be caused by
surges in corporate altruism,
the altruism of Gordon gekko and
the 80s people.
>> Greed is good.
>> Yes, that Gordon gekko.
>> Greed works.
>> So, back to the original
question: If corporate America
is no greedier than ever, how
come profits have soared?
>> What we're seeing in this
moment is really when that
profit maximization and
opportunity collide. And the
opportunity is the cover of
inflation.
>> Aha: The "Opportunity" caused
by the pandemic. And when
companies like Tyson blame
higher costs, as their CEO has?
>> "Labor costs have gone up
20%, cattle costs are up 22%
and freight's up 32%. We're not
asking customers or the consumer
ultimately to pay for our
inefficiencies. We're asking
them to pay for inflation."
>> Woe is me. We have no choice
but to raise our prices. Our
labor costs are going up, our
inputs. Our inputs!
>> But in reality, companies
aren't being forced to raise
prices because of inflation.
They're raising prices because
they can.
>> And why can they now, with so
little resistance? I asked
>> Inflation sort of disguises
these price increases.
When prices for everything
around you are rising, it's much
easier for companies to raise
their prices and not experience
that consumer blowback.
>> The point is, when consumers
come to expect inflation, the
process can begin to feed on
itself.
>> Companies know that consumers
expect higher prices right now
and they're really seeing how
far they can push that.
>> And, says Robert Reich, wall
Street is egging them on, saying
>> Look, this is a great time to
raise your prices, keep your
margins, even raise your profit
margins. And of course,
those wall streeters are saying
the same thing to everybody else
in the industry.
>> But in a competitive market
economy, won't newcomers emerge
offering lower prices? That's a
lot less likely these days,
>> 75 percent of all American
industries have become more
concentrated in the last two
decades.
Most are now dominated by a
handful of corporations that
coordinate prices and
production. This is true of
banks, broadband, pharmaceutical
companies, airlines, meatpackers
>> You got four basic meat
packing facilities. And you pay
a hell of a lot more because
there's only four.
>> Now it's not literally just
4, but 4 dominate the market.
And it's not just meat:
>> See what's happening with
ocean carriers. During the
pandemic, about half a dozen
foreign-owned companies raised
prices by as much as 1,000
percent and made record profits.
>> The traditional check on
consolidation, of course, is
anti-trust enforcement. (Reich
worked at the federal trade
commission in the 1970s. )
>> Antitrust used to be a real
thing
but since the early 1980s,
antitrust has taken a backseat.
In fact, some would say it's
been thrown out of the car
altogether, and big companies
now routinely have the power to
raise prices.
Customers will note that there
is almost an exact price
matching among all major
so-called competitors because
they're not really competing.
>> So, what is to be done?
>> Tonight, I'm announcing a
crackdown on those companies
overcharging American businesses
and consumers.
>> A crackdown on the shipping
industry by regulators.
>> If they identify that there
is market manipulation or price
gouging going on.
>> The president's national
economic advisor, Brian Deese.
>> And the agencies have now
committed to partnering where
the department of justice has
significantly more enforcement
resources and investigatory
resources.
>> And the administration says
it's working to lessen
concentration in the food sector
too.
>> You need scale to be
competitive and it takes capital
to get to scale. So the usda is
actually right now working with
smaller processors in rural
areas across the country to try
to give them grants, give them
low cost capital so that they
can scale, they can get into the
game more quickly and easily.
As the meat industry points out,
though, it's been concentrated
for decades - decades of low
inflation, even in meat.
In the end, this is any
administration's challenge: To
affect real change amidst
economic forces bigger than all
of us.
Meanwhile, with company costs
rising at about 10 percent,
corporate profits are rising
12.4 percent. That extra
two-and-a-half percent or so
seems to be at least part of the
inflation we're all paying for
right now.
For the pbs newshour, Paul