A new report reveals that high corporate profits are significantly contributing to inflation, with companies keeping prices elevated even as their costs decrease. According to the Groundwork Collaborative think tank, corporate profits accounted for about 53% of inflation during the second and third quarters of last year, a stark contrast to the pre-pandemic period, where profits only accounted for 11% of price growth over 40 years. Despite input costs rising by only 1% over the past year, consumer prices have continued to rise by 3.4%, showing that corporations are slow to lower prices after cost drops.
The report challenges the widespread assumption that inflation is driven mainly by supply chain issues, government stimulus, and labor costs. While labor costs did rise in 2021, and external shocks like the Ukraine war contributed to price increases, many of these problems are easing. The report argues that corporations, rather than responding to reduced costs, are exploiting economic shocks to maintain high prices, using implicit collusion and failing to reduce prices when costs fall.
Corporate Greed: The Case of the Diaper Industry
One glaring example highlighted in the report is the diaper industry, where major companies like Procter & Gamble and Kimberly-Clark dominate the market. While the cost of materials like wood pulp rose sharply during the pandemic, it has since dropped by 25%. However, the price of diapers, which increased by 30% since 2019, has remained high, with no signs of reduction. Executives from both companies boasted of increasing profit margins despite falling input costs, with P&G even predicting $800 million in additional profits.
Workers and Corporate Profits: A Growing Divide
While corporate profits have soared, workers’ earnings remain stagnated. Corporate profits have risen by 29% as a share of national income, but workers’ share of corporate earnings has not returned to pre-pandemic levels. This growing income disparity highlights the need for stronger regulation to address corporate profiteering and ensure that workers benefit from the economic recovery.
Solutions: Government Intervention and Tax Reforms
In response to the issue, Pancotti and Weber call for government intervention to curb corporate profiteering, pointing to examples like France, where the government actively regulates price negotiations. They also suggest that tax reforms, particularly addressing the expiration of the Trump-era corporate tax cuts in 2025, could provide an opportunity to rein in corporate excesses. The report argues that the U.S. needs to reevaluate its tax system to discourage corporate profiteering and better balance the interests of consumers, workers, and corporations.