Nov 13, 2021

Profit-led inflation

Robert Reich connects the dots:

The underlying problem isn’t inflation per se. It’s lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits.

In April, Procter & Gamble announced it would start charging more for consumer staples ranging from diapers to toilet paper, citing “rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods”.

But P&G is making huge profits. In the quarter ending 30 September, after some of its price increases went into effect, it reported a whopping 24.7% profit margin. It even spent $3bn during the quarter buying its own stock.

It could raise prices and rake in more money because P&G faces almost no competition. The lion’s share of the market for diapers, to take one example, is controlled by just two companies – P&G and Kimberly-Clark – which roughly coordinate their prices and production. It was hardly a coincidence that Kimberly-Clark announced price increases similar to P&Gs at the same time P&G announced its own price increases….

You can see a similar pattern in energy prices. If energy markets were competitive, producers would have quickly ramped up production to create more supply, once it became clear that demand was growing. But they didn’t.

Why not? Industry experts say oil and gas companies saw bigger money in letting prices run higher before producing more supply. They can get away with this because big oil and gas producers don’t operate in a competitive market. They can manipulate supply by coordinating among themselves.

In sum, inflation isn’t driving most of these price increases. Corporate power is driving them.

Read more here.