Recent data and surveys of corporations indicate that profit-taking has escalated far beyond the rate of inflation. Companies that are justifying price hikes based on workers’ demands for higher pay or shortages of raw materials aren’t bothering to let consumers know that those companies are tacking on a hefty — and unjustified — extra charge to boost their profit margins.
Even before the Federal Reserve began taking steps to restrain inflation with interest-rate hikes, corporate pretax profits had surged 25% year over year to $2.81 trillion, the Bureau of Economic Analysis said in March. The nation hadn’t seen that much of a surge in profits since 1976.
In one survey, by Digital.com, 56% of a thousand retail businesses said inflation has given them the ability to raise prices beyond what they needed to offset higher costs. More than half of retailers have increased prices by 20% or more on average. Profit-taking was happening regardless of the company’s size, although larger corporations were far more prone to price-gouge than smaller ones.
Profit-taking is hardly the only factor contributing to inflation. Global petroleum shortages sparked by Russia’s invasion of Ukraine have had an enormous effect on prices, as have the aftereffects of the pandemic shutdown. But since consumers have shown no willingness to restrain their buying in the face of ever-increasing prices, it’s apparent that many businesses are willing to exploit the spending mentality for their own profit.
Even President Joe Biden acknowledged in recent remarks about the economy that “price gouging” by corporations was contributing to the problem.
“The Republican plan is to increase taxes on the middle-class families and let billionaires and large companies off the hook as they ... raise prices and reap profits at record number — record amounts,” Biden said.
Josh Bivens, an analyst with the left-leaning Economic Policy Institute, says the profit motive has always been there, but economic conditions until recently didn’t offer big companies the ability to dictate higher prices. “It’s not like 15 months ago, corporations, you know, woke up and were like, you know what? We want higher profits ...,” he told National Public Radio. “They always want higher profits.”
Whereas corporate profits typically account for about 12% of product costs, while labor makes up 60%, Bivens says current price increases are driven about 54% by profit-taking and only 8% by increased labor costs.
Having enacted tax cuts for businesses in 2017, Republicans plan to push for more tax breaks if they prevail in the midterms. Why bother? Corporate price gouging accomplishes that goal, and punishes the poor, far more efficiently.