Inflation in the U.S. is at its highest level in 40 years, with the consumer price index increasing 7.5 percent over the past year, before seasonal adjustment. Mamy companies are blaming increased wages and post-pandemic supply issues.
But as the New York Times points out, corporations – from donut sellers on up to Amazon, oil companies, and others – are taking advantage of a moment of hot and seemingly unshakable demand.
One reader of the Fort Worth Star-Telegram wrote to the editor: “You wanted higher wages, products made in America? Then you better accept inflation,” she said. “You asked for an increase in minimum wages. Which led to an overall increase in pay. That increase has been passed on to consumers.”
But, here is something interesting to consider: Some economists and politicians say that corporations are using inflation as an excuse to jack up prices beyond what’s necessary to account for their increased costs.
More than just passing those costs onto consumers, they say, corporations are taking advantage of the unprecedented global economic circumstances to increase their profits, simply because they can.
The current climate amounts to consumers spending “with a vengeance,” to borrow the words of one executive during an earnings call. Corporate executives have spent recent earnings calls bragging about their newfound power to raise prices, often predicting that it will last.
Inflation highest in labor-light sectors
If higher worker pay was the driver behind the increase in the price of consumer goods, it stands to reason that more labor-intensive service sectors of the economy would be seeing the largest jump in consumer prices.
But just the opposite is happening. Price increases for goods are outstripping services by a factor of three, according to CBS News.
“Goods prices are the main driver of inflation,” Julia Pollak, a labor economist at ZipRecruiter, told CBS MoneyWatch. “Wages so far have not been the main driver of inflation at all. Inflation was higher at first in less labor-intensive industries.”
The most labor-intensive items tracked by the Consumer Price Index — eating out and personal services, a category that includes barbershops and beauty salons — have grown 6.2 percent and 4.7 percent from a year ago, respectively.
“Both of those numbers are still below the average inflation rate of 7.5 percent, and there are other categories that are seeing much higher price increases — gasoline prices, housing, furniture,” said Daniel MacDonald, economics chair at California State University at San Bernardino. “The reason those prices are going up is not because wages are going up for producing oil in the U.S. It’s about oil markets, housing markets.”
“The relationship between wages and inflation is almost impossible to find,” added Jonathan Millar, an analyst at Barclays. “The link tends to be much weaker than a layperson might think. It turns out that even during this pandemic, it’s not true that prices have actually kept pace with wages.”
It all comes down to this: Big corporations are padding the price of consumer goods to enhance their profit lines simply because they can. They’re using the current inflationary environment as an excuse to raise prices more than necessary because they don’t have competitors to drive them to keep prices down, in turn contributing to the problem of inflation.
