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Inflation may not have reached an all-time high stateside in 2022. That happened in the 20s when both an all-time rise and then an all-time deflation happened in quick succession.
However, inflation did reach its highest in 40 years (an increase of over 9%) in July 2022. The rate has quadrupled over the past two years, at a time when people have been reeling from the pandemic and its effects on earning capacity. Globally as well, several countries have experienced exceptionally high inflation this year, suggesting interlinked forces in world economics.
The debate has been raging as to the extent to which greedy corporations are responsible for this state of affairs. Activists, non-profit researchers, and many MPs will cite ballooning figures for corporations in profits as the culprit. Impassionate economics professors, on the other hand, will enlighten you about a bunch of neutral market factors and processes.
It’s time to disentangle these threads and assess where do big profit margins of the biggest companies on US soil come in. And if any of that has to do with inflation.
But first, let us check out some essential inflation-related figures to appreciate the extent of the problem:
Inflation and Related Statistics in 2022
Inflation and Core Inflation
Inflation of course refers to a widespread raise in prices across various commodities and utilities on a national scale, leading to a decrease in the purchasing value of money.
Core inflation is a figure that, juxtaposed with inflation at large, draws a finer picture by excluding food and energy from the calculation. Both food and energy sectors commonly experience wild fluctuation in prices, exemplified by the recent gas pricing crisis. Indeed, according to the Department of Labor’s last report in October 2022, food inflation was up by 10.9% since the same time last year, while energy inflation hit a 17.6% rise.
Consumer Prices Index (CPI) is another good measure of core inflation. The Bureau of Labor Statistics collects prices of goods and services and reports the change in the prices over time (typically a 12-month change). The index includes rents (accounting for a third of the overall CPI) and calculates an equivalent rent measure for homeowners.
Core inflation can be seen as superior in assessing “the impact of rising prices on consumer income.” According to Bloomberg reports, core inflation too has been hitting a 40-year high this year, that is, even after leaving out the food and energy sector fluctuations. One cause was understood as rising rents, but even when rent was left out in the calculations, core inflation kept coming high.
What does that mean?
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It means that the inflation rise is not a fluke attributable to the vagaries of the rent, energy, or food markets this year. It’s the prices of goods and services that remain high, quadrupled in two years, and crushing the middle and lower classes’ wallets.
Is High Inflation a Result of Production and Labor Costs?
Corporations cite production costs as the main culprit for inflation. Not only that, several economics professors see that as a plausible explanation.
Producers Price Index
In the same way CPI reports the change in prices over time for the consumers, the Producer Prices Index measures prices of the raw materials in demand by the manufacturers and producers of goods.
As it turns out, the cost of the raw materials used for manufacturing goods and supporting services we consume has also quadrupled since the pandemic. According to the report by BLS for the October 2022 figures:
The Producer Price Index for final demand increased 8.0 percent from October 2021 to October 2022, the smallest 12-month advance since July 2021. Producer prices for goods rose 10.5 percent for the year ended October 2022, while prices for services rose 6.3 percent. Prices for construction increased 19.6 percent.
USA Bureau of Labor Statistics (BLS)
Rising Labor Costs
Labor costs, termed the Employment Cost Index by the BLS, hit their highest level in 20 years. According to Trading Economics, a website that makes sense of the detailed stats and figures included in the BLS report:
Labour Costs in the United States averaged 62.86 points from 1950 until 2022, reaching an all time high of 126.60 points in the third quarter of 2022.
Trading Economics.
The employment costs, also called compensation costs, are typically reported as:
- Government Employment Costs (or Payrolls)
- Private Industry Costs (or Payrolls)
- Manufacturing Costs (or Payrolls)
The Employment Cost Index generally excludes farm labor from its calculations.
These are the overall percent increases in labor costs for the major categories:
| LABOR COST / CHANGE | 3-month % rise | 12-month % rise |
| Overall Employment Cost | 1.2% | 5% |
| Government Payrolls | 1.9% | 4.6% |
| Private Industry Payrolls | 1.1% | 5.2% |
| Manufacturing Industry Only | 5.8% | 5.2% |
There is certainly evidence that production costs, both in terms of workers’ compensation and raw materials costs have risen considerably.
The Cyclic Relationship Between Compensation and Inflation
Focusing on the overall employment index, it may seem like the gains in payrolls have also broken some records. However, the devil lies in the details.
Juxtaposing Inflation Figures Against Production Cost Figures
Overall, this is how the production cost indices fare when compare with inflation figures:
The overall 12-month increase in Consumer Prices (inflation) was 7.7% while for Producer Prices and Employment Costs (production costs) it was 8% and 5% respectively. Casting the figures in the pie chart above shows that while current inflation is a reasonable projection from Producer Prices, Compensation Costs (Employment) are still lagging far behind. They don’t justify the price hikes major corporations have recently shown.
Adjusting Employment Costs for Inflation
Notice the downward trend shown in Chart 4 above reproduced from the BLS employment costs report. We know that employment costs have risen, meaning wages and benefits to the workers have increased. Then why is that graph showing a downward trend, suggesting a decrease, rather than an increase, in workers’ compensation?
Consider this qualifying statement from the Reuters report on recent salary growth in the US:
“But inflation eroded the gains for employees. Inflation adjusted wages for all workers dropped 3.0% year-on-year.”
Rueters Report, 28 OC 2022.
Thus, calculating from the figures summarized in Chart 4, both wages and benefits have suffered a nearly 3% decline in the 2020-2022 period.
It means that apparent increases in employment costs are merely an illusion resulting from not accounting for the decrease in the purchasing value of money due to inflation. In terms of the amounts of goods and other utilities workers’ compensation can buy, salaries have been decreasing; rather than increasing.
At the given rates of inflation for the same time, the compensation ‘growth’ touted for the last 12 months actually amounts to at least a 2.8% paycut from an average worker’s salary.
The BLS elucidates this situation through its “Real Earnings” graph: workers’ compensation minus the straining effect of inflation over the same time period:
Even when you focus on production and nonsupervisory employees (on the lower side of the salary spectrum), there is still a 2.3% decrease in inflation-adjusted salary between October 2021-2022.
Record-Breaking Profits for Companies in the Last Two Years
In the second quarter of 2022, company profits (excluding the finance circuits) bulged to an all-time high of $2 trillion cumulatively, according to the Bureau of Economic Analysis (BEA) report. Corporate profits seem to slow down but only a little bit in the third quarter, according to BEA’s December 2022 report. The decrease was only by $31.6 billion, which is still a gain since this figure only reflects a 3-month change relative to the astronomically high Q2 gains. (think “136 billion minus 36 billion”).
Companies Reporting Astronomical or Record-Breaking Highs
The following examples are quoted from the staff report by Subcommittee on Economic and Consumer Policy, released by Rep. Raja Krishnamoorthi.
- Three of the five largest companies in the shipping industry saw profits rise by 29,965%.
- The two largest public companies in the rental car industry enjoyed a profit increase of 597%.
- Four of the largest public companies in the meat processing industry saw profits go up by 134%.
- Four of the ten largest public companies by market cap in the oil and gas industry had profits rise by 62%.
Some additional corporations which have reported significant gains in their profit margins via their quarterly earning calls conferences are as follows:
- Sherwin-Williams (house paint, etc): 43%
- Johnson & Johnson (healthcare products): 24% or higher
- Mastercard: 23%
- Kraft Heinz: 17%
- Proctor & Gamble: 12% or higher
- Delta Airlines: 12%
- Coca-Cola: 12%
Corporations Gloat Over Strategies to Hike Prices Beyond Production Costs
Those who are on record in their earning calls sharing their intention to continue pushing prices up are the Colgate-Palmolive CEO, HB Fuller’s CEO, Coca-Cola’s CFO,
Some CEOs or Chief Financial Officers have admitted to following blatant strategies to keep profiting from the current trend:
- To use producer prices inflation as an excuse to raise their price hiking frequency.
- To keep pushing or maintaining high prices by limiting either supply or their “affordability” customer base.
- To either push, sustain, or only moderately adjust prices despite cheapening production costs in the future.
Notice how both strategies are meant to design the “affordability” consumer, which is in essence, the ordinary middle and lower-class hard worker or someone from the student, unemployed, or disabled sectors. Management of the following companies are culprits to having committed to the above and other similar strategies as admitted blatantly in their earning calls conferences: Kraft Heinz, Delta Airlines, Coca-Cola, Mondelez (world’s largest snacks company), Tyson Foods, Johnson & Johnson, American Homes4Rent, AvalonBay (rentals), Equity Residentials (real estate), Union Pacific (railway), Mattel (toys), Proctor & Gamble, Sherwin-Williams, and more.
Inflation, Price-Hiking, and Corporate Greed: Economic and Moral Conclusions
Here are the biggest takeaways after the preceding survey of inflation figures, production and employment costs, and price-hiking confessionals by corporate powers:
- In terms of unadjusted dollar value, the increase in compensation costs to corporations lags far behind other production costs relative to the price hikes.
- The gains in compensation are experienced by the workers as pay cuts in reality because inflation rises much higher and faster.
- Corporation CEOs have openly admitted to making billions in profits by taking advantage of inflation.
- Corporations are admitting to limiting supply, raising prices beyond costs, and losing their “low-price” range customers in order to glean more profits from their higher-paying customer base.
These are all topics deserving more attention, and we will return to explore further in future columns on this subject.
For now, there is nothing more left to say apart from the moral conclusion of this inflation hoopla drawn below:
“While corporations enjoy record profits and CEOs get millions more in bonuses, workers are still waiting in vain for better working conditions and working families are still reeling from the immoral price-gougers who jacked up their expenses under the guise of inflation.”
Helen Brosnan, executive director of Fight Corporate Monopolies
