Do higher margins contribute to inflation? Well, profits reflect prices minus costs.
Since the end of 2019, prices are up 17%, outpacing both labor and nonlabor costs. The result: Profit grew by 41%. If profits had grown at the same, slower rate as labor costs, that would have translated to a cumulative price increase of only 12.5%, and an average annual inflation rate roughly 1 percentage point lower.
Between late 2019 and the second quarter of 2022, corporate profit margins shot up to 17% from 13.4%. (These are pretax profits as a share of revenue, minus inputs such as imported parts, and excludes financial companies.)
The reason was obvious: As the economy emerged from pandemic shutdowns, companies faced a wall of demand they couldn’t meet because of shortages of labor, parts, transportation and other inputs—a recipe for pricing power and high margins.
As of the third quarter of 2023, the supply problems had largely been fixed, and profit margins had fallen, but only to 16.4%. Outside the pandemic period, that is the highest since the 1960s.
Take autos. In the two years ended in February 2022, new-vehicle prices shot up 19%, according to Labor Department data, as a shortage of semiconductors stymied supply.
The chip shortages have ended, but in the past year prices are still up 0.4%
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@TermiteLeoRepublican2yrs2Y
There is only one cause of inflation and that is the government printing money. The absurd level of government borrowing and spending is rapidly destroying the purchasing power of every American.
@9CJ6CB62yrs2Y
The government prints money for non-spending purposes too. Value is created by companies, then that money can be handed to companies when they liquify assets or in cash. As profit goes up, their money goes up, which can create massive inflation.
@LobbyistOryxLibertarian2yrs2Y
100% agree that government spending is a large component but we can't ignore the impact of their interference in the labor market. When COVID had been largely slayed, they continued to distort the labor market by expanding super unemployment; thus effectively forcing employers to compete against a government paying people to stay home. This had the effect of doubling the de facto minimum wage.
I am certain concentration hurts - but more involvement by FTC and DoJ is not the solution. The solution is less involvement by the 400 federal agencies that make rules that are harder for small firms to meet. Large concentrated firms can afford to comply with government mandates - they often even write them - much better than a smaller firm.
@BallotNarwhalMountain2yrs2Y
The past 35 years have been an assault by big business and government on small businesses. Crony capitalism reigns. The regulations and taxes on small operations make it extremely difficult to compete. The government imposed lockdowns crushed small companies while mega companies thrived.
I don’t care how much businesses make….the more money government gives people…… the higher businesses can raise prices……the higher the profits, that’s capitalism…..until the government gets out of the giveaway business, people don’t need to make as many choices, markets are distorted, inflation increases, and profits surge…..as both parties cannot get out of this heroine high their voters demand.
@DejectedGorillaDemocrat2yrs2Y
All fees need to be disclosed at time of purchase. No more booking a $99 fleabag hotel room and having a $60 "resort fee" attached when you check in. Because if you'd known about the hidden fees, you would have paid the price for a room in a nicer hotel. the "resort fee" hotels are counting on you being so tired by the time you get to your destination that you won't go searching for another hotel or might not be able to find one if they're all booked up by the time you get there.
That is a deceptive trade practice. It's the reason attorneys file so many class action lawsuits against companies that engage in dodgy business practices.
@GorillaJohnnyRepublican2yrs2Y
It was disclosed. You just didn't pay attention.
If it wasn't disclosed people would dispute the credit card charge, and win
@DejectedGorillaDemocrat2yrs2Y
Let’s not forget Trump’s Tax Law created gushers of federal treasury receipts once his early accelerated deductions expired - these deductions needed to incentivize the reshoring of profits trapped offshore by the tax code. But even during the accelerated deduction early phase of the tax law, Trump’s new treasury receipts still set records every month. Bidenomics killed the treasury receipt gravy train.
The Tax Law cost the government nothing while reducing profit margins due to increased domestic competition.
@ISIDEWITH2yrs2Y
How would you personally weigh the importance of a company's profitability against the overall economic health and cost of living for the average person?
@9KVVBSSRepublican2yrs2Y
It is a massive issue, if the prices go up then we eventually wont be able to buy groceries.
@BrainySealConstitution2yrs2Y
The real reason for inflation? Biden shutting down the Keystone pipeline. That quickly doubled gas prices, which instantly avalanched into other sectors.
Don't believe the blame game the WH is spouting; Biden's inflation is being palmed off to Powell, who trying to use a broken broom to clean up Joe's financial mess.
@ISIDEWITH2yrs2Y
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