Major corporations are reporting record profits as they promise shareholders that they will raise prices of their goods. Many point to inflation as the reason for their need to raise prices, saying it takes more money to produce the same amount of products.
Corporations Blame Inflation for the Need to Raise Prices
Tyson Foods, the world’s leader in poultry production, hiked its prices by nearly 20% overall. As a result, it reported record profits, leading to record-breaking highs for its stock prices.
Meanwhile, Starbucks announced its latest plans to raise prices this February, its third hike since October 2021. Like the others, it blamed inflation for its need to raise prices.
However, Starbucks generated a 31% increase in profits at the end of 2021.
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According to Bureau of Labor Statistics data, American fast-food restaurants raised their prices by 8% last year. In contrast, the Consumer Price Index, the indicator of inflation, rose by only 5.8% in the same period.
This rate applies to personal consumption items. Overall, inflation registered a 7.5% increase during 2021, its highest rate in nearly 40 years.
Inflation is Only Part of the Story for Higher Prices
Analysts agree that inflation does play a large part in adjusting the prices of products and services.
The ongoing supply chain crisis is limiting the production and delivery of goods. Meanwhile, many US households reported a bump in their income through wage hikes and benefits. These factors combine to trigger inflation: demand far exceeds supply.
However, many economists and politicians say that companies are hiding behind inflation to jack up prices too much.
Many corporations didn’t just pass on the costs to consumers, they also took the opportunity to increase profits. The reason? Because they can.
Anti-competitive Corporate Behavior
Lawmakers such as Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) called out
corporations for making outrageous price increases. These companies made matters worse by exhibiting anti-competitive corporate behavior.
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Critics accuse corporations of raising prices that far exceed the added cost brought by inflation. They believe that companies do so because many don’t have competitors to drive prices down.
In addition, shareholders reward companies that hike prices with higher valuations and improved revenues. This incentivizes them into continuing to raise prices while they can.
Unfortunately, consumers will have no idea where price increases actually go. Nobel laureate in Economics Joseph Stiglitz agrees with this sentiment.
He compares corporate activities to what the oil industry is doing. “What we are seeing today is a naked exercise of oil producers’ market power,” Stiglitz wrote. “Knowing that their days are numbered, oil companies are reaping whatever returns they still can.”
Inflation is A Cover to Boost Profits
Lindsay Owens is the executive director of the progressive economic policy organization the Groundwork Collaborative. She said that the corporate practice of price hikes predates the pandemic.
“These foundations were set in place long before the crisis itself,” she said. During earnings calls, “executives are using inflation as a cover for egregious price hikes to boost their own profits.”
Watch the Problem With Jon Stewart’s video titled “Corporate Greed Is Causing Inflation”
Do you agree or disagree that corporations are using inflation as an excuse to boost profits by raising prices?
Also, do you think that corporations should account for their price increases by providing a breakdown of where costs go?
Tell us what you think. Share your thoughts in the comments section below.