(AmericanProsperity.com) – A new report shows that there may be a connection between high inflation and corporate profits.
The report was done by Groundwork Collaborative, and it found that corporate profits accounted for, on average, 53% of inflation during last year’s second and third quarters. We’ve seen high inflation in the United States for months now with no avail having prices rise in grocery stores with no relief for many Americans.
The report spoke about prices for consumers and prices for businesses and producers as well. The report stated that prices for consumers rose 3.4% while prices for the producers only rose 1%.
Liz Pancotti, a Groundwork strategic advisor said, “Costs have come down substantially, and while corporations were quick to pass on their increased costs to consumers, they are surprisingly less quick to pass on their savings to consumers.”
With the high inflation, many experts have been trying to figure out the cause and have come up with ideas such as supply chain issues, “greedflation”, their term for corporate profits; and others believe it’s because of the stimulus checks and high wages.
Those who authored the report went through many different phases of investigation to deduce the source of this inflation. During this time, they found that during many business earning calls, they found corporate executives talking about keeping their prices high, despite inflation technically being lower and them being able to lower their prices. Instead, they are taking advantage and keeping the prices high for consumers.
The Federal Reserve has been hiking up interest rates to combat inflation, but after these findings, many experts claim that there is no reason for another interest rate spike, and rather they should investigate corporations and their profits and pricing.
Others have stated that corporations can keep their high prices by implementing “cost shocks” which are caused by big events such as the Ukraine war. However, these companies choose to raise their prices but then have no reason or desire to lower them back.
“This is a form of implicit collusion. Firms do not even need to talk to one another to know that a cost shock is a great time to raise prices. But when costs fall, price-setting firms do not have any incentive to decrease prices,” Pancotti said.
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