Greedflation?

[lpetrich]

This theory, that corporate profiteering is causing much inflation, has gotten increased prominence in recent months. Here are some articles from a year ago, and a recent one.

Iron Mountain CEO Says He’s Been “Praying for Inflation” - The Intercept - September 28 2022, 1:06 p.m.

he CEO of Iron Mountain Inc. told Wall Street analysts at a September 20 investor event that the high levels of inflation of the past several years had helped the company increase its margins — and that for that reason he had long been “doing my inflation dance praying for inflation.”

The comment is an unusually candid admission of a dirty secret in the business world: corporations use inflation as a pretext to hike prices. “Corporations are using those increasing costs – of materials, components and labor – as excuses to increase their prices even higher, resulting in bigger profits,” Robert Reich, former Labor Secretary under Clinton, recently argued. Corporate profits are now at their highest level since 1950.

Almost every news story on inflation has pointed out that inflation is now at its highest rate in 40 years. Far less emphasis has been placed on the fact that corporate profits are currently at their highest rate in 72 years. The after-tax profits of nonfinancial corporations averaged about 5 percent of the U.S. gross domestic product from 1950 until 1980. They then dropped until shooting upward again during the 2000s. Currently they stand at above 8 percent of GDP. The 3 percentage point difference between 8 percent and the 5 percent average of the past constitutes over $600 billion a year that otherwise could go to workers or reduced prices.

...
he degree to which corporate profits have contributed to prices going up, and what to do about it, has been discussed by some Democrats in Congress and the Biden administration. Last year, President Joe Biden accused oil and gas companies of “anti-consumer behavior,” citing the fact that the two largest companies “are on track to nearly double their net income over 2019.” In May, Democrats introduced legislation to prohibit price gouging by authorizing the Federal Trade Commission and state attorneys general to enforce a federal ban on excessive price increases. But the general subject has only gotten modest traction in the media.

Economists are reconsidering how much corporate profits drive inflation : NPR - May 19, 2023 - 4:51 PM ET

In the past, corporate profit growth accounted for maybe a third of inflation. But a report from the Kansas City Fed found that nearly 60% of inflation in 2021 was because of corporate profits.

The Federal Reserve, the US central bank.

GLOVER: Let me see. It is possible that firms, by anticipating higher costs, contributed to the inflationary pressures that actually led to higher costs.

GONZALEZ: Yeah, corporations anticipating higher inflation could have been why we got higher inflation. And Andrew says this could spiral.

That's awfully generous, because top management and stockholders have not been complaining very much about that. They aren't saying "That's very generous of you, but we don't want the money. It's better saved for a rainy day or for giving raises to the employees or for lowering prices to get market share."

What has the Federal Reserve been doing about it? Raising interest rates to try to cause an economic slump and put people out of work.

Fed Economist Warns of “Severe Recession” From Rate Hikes - The Intercept - September 9 2022, 7:00 a.m.

Real Estate CEO Pro-Recession If It Benefits Employers - The Intercept - August 24 2022, 1:50 p.m.

The CEO and president of Douglas Emmett Inc., a real estate corporation worth over $3 billion and based in Santa Monica, California, said on an August 2 corporate earnings call that a recession could be “good” for the commercial real estate business “if it comes with a level of unemployment that puts employers back in the driver seat and allows them to get all their employees back into the office.” The executive, Jordan Kaplan, then repeated that “the thought would be that unemployment would be up. And therefore, employers would be in the driver seat to bring people back in the office, which is where they want them.”

“Rather than that,” Kaplan added, “I would not be pleased to have us going into a recession.” He noted that “recessions are a revenue-hitting activity. And if my tenants are feeling the impact of recession, then I can’t imagine how I think that’s good.”

Kaplan made the remarks in response to a question from Citigroup analyst Michael Griffin, who said that “we’ve seen some of your office peers come out and say potentially that a recession could be good for the office space. … Curious kind of to get your thoughts of what we could expect from an impact on the portfolio, just given the central recessionary environment on the horizon.”

In other words, working from home is a bad for his company's business because it makes office space less necessary.

Intercepted: How Fiscal Hawks Use Inflation to Tamp Down Worker Power - The Intercept - August 10 2022, 6:01 a.m. - "Fiscal hawks want to tamp down inflation by increasing unemployment instead of cutting into executives’ profits."

Corporate profits have contributed disproportionately to inflation. How should policymakers respond? | Economic Policy Institute - April 21, 2022 at 2:43 pm

 

[lpetrich]

But more recently, "greedflation" is now being discussed in some very mainstream news services.

Why Is Inflation So Sticky? It Could Be Corporate Profits - WSJ - May 2, 2023 5:53 am ET - "Some companies might have been raising prices faster than their costs have increased"
(the Wall Street Journal is heavily paywalled)

Are Big Profits Keeping Prices High? Some Central Bankers Are Concerned. - The New York Times - March 31, 2023 - "Companies’ rising profit margins could be contributing to persistent inflation, a European Central Bank policymaker says."

After months of fretting about whether workers’ rising pay would keep inflation uncomfortably high, central bankers in Europe have another concern: large company profits.

Companies that push up their prices above and beyond what is necessary to absorb higher costs could be fueling inflation that central bankers need to combat with higher interest rates, a policymaker at the European Central Bank warned, suggesting that governments might need to intervene in some situations.

Policymakers, long preoccupied with higher pay’s tendency to prompt companies to raise their prices, generating a wage-price spiral, should also be alert to the risks of a so-called profit-price spiral, said Fabio Panetta, an executive board member at the E.C.B. At a conference in Frankfurt last week, he pointed out that in the fourth quarter of last year half of domestic price pressures in the eurozone came from profits, while the other half stemmed from wages.

Economist fears ‘end of capitalism’ amid ‘Greedflation’ | Fortune - April 5, 2023 at 1:53 PM PDT

When costs go up, so do profits? That’s not how capitalism is supposed to work, but that is the recent trend. For over a year now, consumers and businesses, both in the U.S. and worldwide, have struggled with stubborn inflation. But the soaring costs haven’t prevented corporations from raking in record profits. The companies in last year’s Fortune 500 alone generated an all-time high $1.8 trillion in profit on $16.1 trillion in revenue. Voices largely on the left side of the political spectrum have been sounding the alarm on this—think: Bernie Sanders in Congress or Jon Stewart’s recent grilling of former Treasury Secretary Larry Summers—but now an economist at one of the world’s oldest and greatest investment banks is singing the same tune.

Albert Edwards, a global strategist at the 159-year-old bank Société Générale, just released a blistering note on the phenomenon that has come to be called Greedflation. Corporations, particularly in developed economies like the U.S. and U.K., have used rising raw material costs amid the pandemic and the war in Ukraine as an “excuse” to raise prices and expand profit margins to new heights, he said. And the French investment bank isn’t just historic: It’s one of the select banks considered to be “systemically important” by the Financial Stability Board, the G20’s international body dedicated to safeguarding the global financial system.

Furthermore, Edwards wrote, in the Tuesday edition of his Global Strategy Weekly, after four decades of working in finance, he’s never seen anything like the “unprecedented” and “astonishing” levels of corporate Greedflation in this economic cycle. To his point, a January study from the Federal Reserve Bank of Kansas City found that “markup growth”—the increase in the ratio between the price a firm charges and its cost of production—was a far more important factor driving inflation in 2021 than it has been throughout economic history.

End of capitalism? Seems unlikely. More like disciplining of leaders and managements of big businesses.

 

[lpetrich]

‘Global greedflation’: big firms ‘driving shopping bills to record highs’ | Inflation | The Guardian - Sun 12 Mar 2023 12.00 EDT - "Analysis by UK union shows large corporations have improved profits with price rises in cost of living crisis"

Large corporations have fuelled inflation with price increases that go beyond rising costs of raw materials and wages, pushing shopping bills to record highs, according to an analysis of hundreds of company accounts.

Highlighting a trend dubbed “greedflation”, the research indicates that supermarkets, food manufacturers and shipping companies are among hundreds of major firms who have improved their profits and protected shareholder dividends, giving an extra lift to prices, while the cost of living crisis has meant workers face the biggest fall in living standards in a century.

This isn’t wage-price inflation, it’s greedflation – and big companies are to blame | Larry Elliott | The Guardian - Wed 19 Apr 2023 13.35 EDT - "British ministers seem keen to avoid what the data tells us: it’s not pay that is turbocharging the cost of living" - in US terms, Cabinet officials and the like

Inflation is proving hard to shift, and that spells big trouble for a government fast running out of excuses for why the cost of the weekly grocery shop is rising at its fastest rate since 1977.

Global energy prices have collapsed, and the price of food on international commodity markets is coming down too, so it’s hard any longer to blame Vladimir Putin for inflation being so sticky. Nor is it immediately obvious why junior doctors should be the fall guys.

Despite attempts by ministers to finger workers for the persistence of the cost of living crisis, there is no real evidence that this is the case. Both the International Monetary Fund and the European Central Bank have looked at whether higher wages are driving up prices, and neither of those august bodies thinks that is happening.

What they have found is that companies have been able to use the crisis to drive up prices and boost profit margins. The IMF and the ECB wouldn’t put it in these terms, of course, but both support the idea that companies are gouging their customers when they can. The non-technical term for what is going on is greedflation.

Noting
World Economic Outlook, April 2023: A Rocky Recovery - International Monetary Fund
Interview with The New York Times - 1 April 2023 - 'Interview with Fabio Panetta, Member of the Executive Board of the ECB, published as an article by Eshe Nelson entitled “Are Big Profits Keeping Prices High? Some Central Bankers Are Concerned.” in The New York Times, 31 March 2023'

I've also found
How Pundits’ Inflation Myth Crushed The Working Class - "After corporate media lied America into a war and a financial crisis, data show they lied about a main source of price hikes — and brutal policies followed."

One year ago, as price hikes were becoming a major national concern, the world’s third-richest man touted his newspaper columnist asserting that corporate profits were not a driving force behind inflation — blaming temporary COVID-19 pandemic aid instead.

While Washington Post owner Jeff Bezos and others were trying to steer the inflation discourse away from a focus on business profiteering, there was already data showing that most of the price increases Americans were experiencing could be attributed to larger corporate profit margins.

 

[Politesse]

Don't be silly, the only way to combat inflation is to put more of the poorest people out of work, then scold them for their lack of patriotism if they complain.

 

[ZiprHead]

I said that more than a year ago. When I said raising interest rates on everyone wasn't the cure because it doesn't address the problem, some of the more conservative members here pooh poohed the idea. But here we are, still under the grip of inflation.

 

[lpetrich]

Don't be silly, the only way to combat inflation is to put more of the poorest people out of work, then scold them for their lack of patriotism if they complain.

Also, say how lazy they are when they can't find jobs.

 

[lpetrich]

Here also. Once a fringe theory, "greedflation" gets its due

Once dismissed as a fringe theory, the idea that corporate thirst for profits drives up inflation, aka "greedflation," is now being taken more seriously by economists, policymakers and the business press.

...
The idea that profits drove our current bout of inflation surfaced in the last few years among progressive economists and lawmakers but was waved away by more mainstream types as a "conspiracy theory." That changed earlier this year.

noting
Speech by Vice Chair Brainard on the economic outlook - Federal Reserve Board

Retail markups in a number of sectors have seen material increases in what could be described as a price–price spiral, whereby final prices have risen by more than the increases in input prices.11 The compression of these markups as supply constraints ease, inventories rise, and demand cools could contribute to disinflationary pressures.

 

[TV and credit cards]

I posted as much in another thread somewhere in a Capt Obvious sort of way. Something to the effect of, wouldn't it be corporate America's capitalistic duty to hide a little profit for themselves behind inflation? Ma and Pa Kettle ain't gonna know. They damn sure don't sit around reading earnings reports. Might have been the cost of gasoline thread where profits for the oil companies reached new heights.

Hasn't everyone here been on this planet long enough to see this same old horseshit play out time and again?
From hiding profits behind inflation to six inch thick legislation with loopholes for the mega-wealthy to exploit to the opaque government procurement system that allows corporate America to hoover up massive amounts of tax dollars unchecked.
Shouldn't Greedflation go in the folder where Trickle Down Economics resides?

 

[Tigers!]

Don't be silly, the only way to combat inflation is to put more of the poorest people out of work, then scold them for their lack of patriotism if they complain.

Only scold them?
Stocks (old-fashioned ones) are the best cure for malingerers and complainers.

 

[laughing dog]

“Greedflation” has been around forever. Profits are a driver in capitalism. Can’t have one without the other.

 

[Jason Harvestdancer]

“Greedflation” has been around forever. Profits are a driver in capitalism. Can’t have one without the other.

You need greed, which isn't the same thing as "greedflation".

 

[laughing dog]

“Greedflation” has been around forever. Profits are a driver in capitalism. Can’t have one without the other.

You need greed, which isn't the same thing as "greedflation".

Greedflation requires greed even if greed does not require greedflation.

 

[Jason Harvestdancer]

“Greedflation” has been around forever. Profits are a driver in capitalism. Can’t have one without the other.

You need greed, which isn't the same thing as "greedflation".

Greedflation requires greed even if greed does not require greedflation.

Greed and Greedflation are not synonyms. You should not treat them as such.

 

[laughing dog]

“Greedflation” has been around forever. Profits are a driver in capitalism. Can’t have one without the other.

You need greed, which isn't the same thing as "greedflation".

Greedflation requires greed even if greed does not require greedflation.

Greed and Greedflation are not synonyms. You should not treat them as such.

I didn’t, but thanks for your concern.

 

[Jason Harvestdancer]

“Greedflation” has been around forever. Profits are a driver in capitalism. Can’t have one without the other.

You need greed, which isn't the same thing as "greedflation".

Greedflation requires greed even if greed does not require greedflation.

Greed and Greedflation are not synonyms. You should not treat them as such.

I didn’t, but thanks for your concern.

You did when you wrote "“Greedflation” has been around forever. Profits are a driver in capitalism. Can’t have one without the other.". You equated the search for profit with Greedflation.

Did you read what you wrote before you posted it? That would explain a lot about your posts...

 

[laughing dog]

“Greedflation” has been around forever. Profits are a driver in capitalism. Can’t have one without the other.

You need greed, which isn't the same thing as "greedflation".

Greedflation requires greed even if greed does not require greedflation.

Greed and Greedflation are not synonyms. You should not treat them as such.

I didn’t, but thanks for your concern.

You did when you wrote "“Greedflation” has been around forever. Profits are a driver in capitalism. Can’t have one without the other.". You equated the search for profit with Greedflation.

If you read what you wrote, you have shifted from greed to profit in drawing yet another erroneous conclusion. Perhaps you should read posts - yours and those of others - more closely in order to avoid wasting your time and efforts.



Greedflation refers to price increases not caused by increases in costs. It is either ignorant or naive to think such price increases are a new phenomenon. It occurs because people are human. Now if you wish to discuss that observation instead of some mistaken pedantic derail, I will engage. Otherwise, no.

 

[Lumpenproletariat]

Obviously it's capitalist greed causing the inflation. Because in the period 1990-2020 there was much lower inflation, almost zero many times ---- back before there was capitalist greed.

 

[marc]

How was it even a 'theory'? In a time of rising costs (the cause of inflation) corporate profits Increased, making it pretty clear their increased prices were significantly more than the increase in their costs.

 

[Politesse]

How was it even a 'theory'? In a time of rising costs (the cause of inflation) corporate profits Increased, making it pretty clear their increased prices were significantly more than the increase in their costs.

Theory = a hypothesis whose central claim is supported by a coherent pattern of evidence.

 

[Politesse]

Obviously it's capitalist greed causing the inflation. Because in the period 1990-2020 there was much lower inflation, almost zero many times ---- back before there was capitalist greed.

How would the greedflation phenomenon occur in the absence of a public perception of high inflation (or perception that it is likely)? The whole point is that this is, essentially carpetbagging off of economic news/perception.