There is abundant research (including from the Centre for Future Work, here here and here) showing that corporate profit margins have expanded significantly in the course of the current acceleration of inflation. It is not solely a process of companies passing along higher input and labour costs to consumers through higher prices. Rather, corporations have used their market power and disruptions in normal supply channels to widen their profit margins.
In Canada, after-tax corporate profits have increased to their highest share of GDP ever, coincident with the sharp rise in consumer prices. Since it’s corporations who literally set those prices, perhaps this shouldn’t be surprising. Labour costs, meanwhile, have lagged the rise in prices – and despite a recent uptick are still growing more slowly than they were before the pandemic (when inflation was just 2%). It is impossible to credibly blame wages for the acceleration in prices.
While it’s straightforward to show that corporations have profited from the inflation, a deeper analysis is required to consider why and how they have been able to use the current moment to so painfully extract more from their consumers. It’s not convincing to simply blame ‘price-gouging’: if corporations had that much unilateral pricing power, why didn’t they jack up prices before the pandemic?
Corporate pricing power seems to reflect a conjuncture of the supply chain disruptions associated with the pandemic, strong aggregate demand conditions (a legacy, in part, of powerful government income supports during the worst phases of the pandemic), and oligopolistic market structures in some industries – especially those (like energy, housing, and groceries) which have experienced the fastest price increases.
In this new report, originally published by the progressive website Jacobin, Centre for Future Work Director Jim Stanford considers the determinants of corporate pricing power more deeply. In addition to better understanding the roots of the problem, this analysis suggests progressive alternatives for trying to reduce inflation – but without imposing conventional monetary austerity, which now seems likely to spark a worldwide recession.
Challenging corporate profit margins – including by directly regulating some prices, taxing excess profits, and direct public provision of some essential goods and services – will be crucial for reducing inflation while preserving strong labour market conditions. In the meantime, workers are justified in fighting hard to preserve their real living standards against the current inflation, until the true sources of the problem (and the true culprits) are confronted.
Please read the full report, Corporations Are Profiting From Inflation: But Why and How?