WASHINGTON (AP) – Infuriated by rising gas station and supermarket prices, many consumers feel they know where to blame: greedy companies that keep raising prices non-stop and pocketing profits.
In response to that sentiment, the Democratic-led House of Representatives last month passed a party-line vote – most Democrats in favor, all Republicans against – a bill designed to crack down on the alleged rise in prices of energy producers.
Similarly, the UK last month announced plans to impose a 25% temporary tax on the profits of oil and gas companies and allocate income to households in financial difficulties.
However, despite all the public resentment, most economists say that the rise in corporate prices is, at most, one of the many causes of rampant inflation, not the main one.
“There are much more plausible candidates for what is happening,” said José Azar, an economist at the University of Navarra.
They include: Supply interruptions to factories, ports, and freight parks. Lack of workers. The huge pandemic aid program of President Joe Biden. Closures caused by COVID 19 in China. The Russian invasion of Ukraine. And, not least, a Federal Reserve that kept interest rates very low longer than experts say it should.
Above all, however, economists say the revival of consumer and government spending boosted inflation.
The blame game is intensifying, in any case, after the US government reported that inflation reached 8.6% in May over the previous year, the largest price rise since 1981.
To fight inflation, the Fed is now aggressively restricting credit. On June 15, it raised its short-term benchmark rate by three-quarters of a point, its biggest rise since 1994, and indicated that more rate hikes are approaching. The Fed hopes to achieve a notoriously difficult “soft landing”: curbing growth enough to curb inflation without causing the economy to fall into recession.
For years, inflation had remained at or below the Fed’s annual 2% target, even as unemployment plummeted to a half-century low. But as the economy bounced back from the pandemic recession with astonishing speed and strength, the U.S. consumer price index rose steadily: from a 2.6% year-on-year rise in March 2021 to maximum of four decades last month.
At least for a while, before the S&P 500 corporate profit margins fell earlier this year, rising inflation coincided with rising business profits. It was easy for consumers to connect the dots: it looked like companies were engaged in price increases. This was not just inflation. It was greed.
When asked to identify the culprits of rising gasoline prices, 72% of the 1,055 Americans surveyed in late April and early May by the Washington Post and the Schar School of Policy and Government of the United States George Mason University blamed for-profit corporations more than the share pointed out by Russia’s war against Ukraine (69%) or Biden (58%) or pandemic disruptions (58%). And the verdict was bipartisan: 86% of Democrats and 52% of Republicans blamed corporations for inflated gas prices.
“It’s very natural for consumers to see prices go up and get angry about it and then look for someone to blame,” said Christopher Conlon, an economist at New York University’s Stern School of Business studying corporate competition. . “You and I can’t set prices at the supermarket, the gas station or the car dealership. So people naturally blame corporations, because these are the ones who see prices go up. ”
However, Conlon and many other economists are reluctant to accuse or favor punishment in American companies. When the Booth School of Business at the University of Chicago asked economists this month if they would support a law banning large companies from selling their goods or services at an “inadmissible excessive price” during a market crash, the 65 % said no. Only 5% supported the idea.
Economist Azar acknowledges which combination of factors is most responsible for causing prices to rise “is still an open question.” COVID-19 and its consequences have made it difficult to assess the state of the economy. Today’s economists have no experience analyzing the financial consequences of a pandemic.
Politicians and analysts have repeatedly seen the path the economy has taken since COVID-19 struck in March 2020: they did not expect a rapid recovery from the recession, driven by high government spending. and record low rates designed by the Fed and other central banks. banks. They then took time to recognize the growing threat of high inflationary pressures, dismissing them at first as a merely temporary consequence of supply disruptions.
One aspect of the economy, however, is indisputable: a wave of mergers in recent decades has killed or reduced competition between airlines, banks, meat packaging companies and many other industries. This consolidation has given surviving companies the strength to demand price cuts from suppliers, to retain workers ’wages, and to pass on higher costs to customers who have no choice but to pay.
Researchers at the Federal Reserve Bank of Boston have found that less competition makes it easier for companies to pass on higher costs to customers, calling it an “amplifying factor” in the resurgence of inflation.
Josh Bivens, research director at the Liberal Institute of Economic Policy, has estimated that nearly 54% of price increases in non-financial firms since mid-2020 can be attributed to “larger profit margins,” compared with only 11% between 1979 and 2019.
Bivens admitted that neither corporate greed nor market influence has likely grown significantly in the last two years. But he suggested that during COVID’s inflationary rise, companies have redirected the way they use their market power: many have stopped pressuring suppliers to reduce costs and limit workers’ wages, and instead have increased their wages. prices for customers.
In a study of about 3,700 companies published last week, the left-wing Roosevelt Institute concluded that profit margins and profit margins reached their highest level since the 1950s last year. He also found that firms that had aggressively raised prices before the pandemic were more likely to do so after the attack, “suggesting a role for market power as an explanatory driver of inflation.”
However, many economists are not convinced that corporate greed is the main culprit. Jason Furman, one of Obama’s top White House economic advisers, said some evidence even suggests that monopolies are slower than companies facing stiff competition to raise prices when they increase their prices. own costs, “partly because their prices were high to begin with.” ”
Similarly, NYU’s Conlon cites examples where prices have skyrocketed in competitive markets. Used cars, for example, are sold in batches nationwide and by numerous individuals. However, average prices for used cars have skyrocketed 16% over the past year. Similarly, the average price of large appliances, another market with many competitors, increased by almost 10% last month over the previous year.
By contrast, the price of alcoholic beverages has risen by only 4% over a year ago, although the beer market is dominated by AB-Inbev and spirits by Bacardi and Diageo.
“It’s hard to imagine AB-Inbev not being as greedy as Maytag,” Conlon said.
So what has driven the inflation rise the most?
“Demand,” Furman said, now at Harvard University. “A lot of government spending, a lot of monetary support, all combined to support extraordinarily high levels of demand. Supply could not keep up, so prices went up.”
Researchers at the Federal Reserve Bank of San Francisco estimate that government aid to the economy during the pandemic, which put money in the pockets of consumers to help them withstand the crisis and cause high spending, has inflation has risen about 3 percentage points since the first half of 2021.
In a report released in April, researchers at the Federal Reserve Bank of St. Louis blamed bottlenecks in the global supply chain for playing an “important role” in rising factory costs. They found it added a staggering 20 percentage points to wholesale inflation in the manufacturing industry last November, raising it to 30%.
However, even some economists who do not blame greed for last year’s rising prices say they believe governments should try to restrict the market power of monopolies, perhaps by blocking mergers that reduce competition. The idea is that more companies competing for the same customers will encourage innovation and make the economy more productive.
Still, tougher antitrust policies probably wouldn’t do much to curb inflation soon.
“I find it helpful to think of competition as diet and exercise,” Conlon of NYU said. “More competition is a good thing. But like diet and exercise, the benefits are long-term.
“Right now, the patient is in the emergency room. Of course, diet and exercise are still a good thing. But we need to address the acute problem of inflation.”
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AP economics writer Christopher Rugaber contributed to this report.