Uncovering the Realities of Harris' Allegations on Inflation and Corporate Avarice
There's some truth to the claims, indeed.
"We're all aware that prices escalated during the pandemic when supply chains faltered and malfunctioned, but fortunately, our supply chains have improved now and prices should have returned to normal," Kamala Harris stated during an economic discourse in North Carolina on Friday. "However, numerous prominent food corporations are enjoying their highest profit margins in over two decades. Although many retailers are passing on these cost savings to their consumers, others still aren't."
"The majority of businesses are generating jobs, boosting our economy, and adhering to the rules. But some are not, and that's simply not acceptable. We need to take action when that occurs," Harris emphasized.
Yet, the Harris-Biden administration's crusade against 'greedflation' and price hikes overlooks three fundamental realities: Consumers play a significant role in the cost of goods, inflation had multiple root causes, and the war on inflation has predominantly been won already.
Profits are up, but they’ve been greater in recent years
To set the record straight, some prominent food companies are pocketing substantial profits. Nevertheless, it's worth noting that some of these corporations reported even more impressive profits when inflation was much lower.
For instance, PepsiCo reported a record $9.1 billion in earnings in 2021, a $2 billion increase from 2020. However, its profits still fell short of the $12.5 billion it made in 2018 when inflation was under 3%. Kroger, one of the leading supermarket chains in the nation, also reported higher profits in 2018 compared to 2023.
Kraft Heinz, on the other hand, earned a whopping $10.9 billion in 2017, almost quadrupling its profit from 2022.
Thus, while Harris' argument isn't entirely flawed, it's not entirely accurate either. There are instances where increased prices have translated to greater corporate profits, such as Cal-Maine Foods, the largest egg producer in the US, which saw its revenue nearly double and profit surge 718% due to skyrocketing egg prices during the first quarter of 2021.
Supply and demand
Before any accusations of being bias start pouring in, let's acknowledge the obvious: businesses aim to maximize their profits. Companies will find every possible means and excuses to take advantage of consumers. Ultimately, they're not on your side.
Consequently, 'shrinkflation,' the sneaky practice of maintaining the same price while reducing the size of the product, is a persistent issue. Greedflation is undeniably a reality as well. But believe it or not: the San Francisco Federal Reserve carried out a comprehensive analysis on the matter in May, pointing out anomalous price increases that didn't align with market conditions for goods like gasoline, cars, repair costs, laundry, and personal care when inflation began to surge in 2021.
However, it's essential to remember that the U.S. economy is not just a handful of markets. Companies' profit-taking wasn't a leading cause of inflation, according to the same San Francisco Fed study. Those price markups in certain sectors weren't unusual – and when viewed in totality, greedflation was practically non-existent.
A Fed study is always helpful when conveying a message, but the case against price gouging as a primary driver of inflation isn't rocket science. It's just basic economics 101: supply and demand determine prices, not businesses alone.
And nowhere is this more evident than in the retail sector today: numerous businesses across the board have disclosed to Wall Street analysts that some customers are refuse to pay higher prices. Consequently, companies like Target, Starbucks, and McDonald's have lowered their prices and introduced promotions to win back customers.
Rents have also decreased in recent months due to an oversupply of new rental housing, leading to landlords offering incentives like a free month of rent or free parking to lure in tenants.
The power of supply and demand once again.
What triggered the inflation crisis
So if it wasn't greedy corporations, what exactly caused inflation to surge?
The saga begins with Covid dealing significant blows to the global economy. The pandemic forced many nations, including the United States, to temporarily halt economic activity and inject trillions of dollars of stimulus into the economy to support businesses and workers. This provided workers with extra funds that artificially boosted consumer spending – a phenomenon that would continue for several years.
The Federal Reserve joined in by reducing interest rates to almost zero levels for two years, providing a financial windfall for generations. As a result, Americans snapped up homes with astonishingly low 30-year mortgage rates ranging from 2% to 3%. And those who own homes were able to refinance at comparable rates.
This perfect convergence of circumstances set the stage for prices to skyrocket.
Then, Russia's invasion of Ukraine aggravated the global supply chain chaos, driving prices even higher, and disruptions and chaos in the Middle East temporarily increased oil prices as well.
Inflation is no longer a significant concern
Nobody enjoys paying higher prices, and polls consistently show a poor opinion of the economy due to inflation. But inflation is no longer the top concern for the economy.
Prices aren't causing as much concern among economists these days, it's jobs they're worried about now. Following a surge above a 9% yearly rise, consumer inflation has dropped to a mere 3%, hitting a three-year low. The Fed's favored indicator of inflation, the Personal Consumption Expenditures price index, has even dipped close to the Fed's desired 2% inflation rate by half a percentage point.
Cracking down on excessive pricing and profit-seeking might be popular talk, but some economists believe it could lead to more complications than solutions, as reported by CNN.
Businesses aren't inherently reliable, which is why we have regulations. However, the battle against inflation has essentially been won. Consumers have made their stance clear. Acting now isn't likely to yield much benefit.
Despite the improvement in supply chains and prices returning to normal, some prominent food corporations are still experiencing record-high profit margins. This situation, although partly addressed by some retailers passing on cost savings to consumers, highlights the need for businesses to adhere to economic regulations and ensure they contribute positively to the overall economy.
The surge in inflation had multiple root causes beyond just corporations' profit-seeking, and the war on inflation has already been largely won. Consumers' purchasing power and market conditions, including supply and demand, play a significant role in determining prices, and many businesses are already responding to consumer resistance against higher prices.
