The rising cost of living in the US has been a major concern for many Americans, especially amid the pandemic and its aftermath. But while the Federal Reserve has been trying to tame inflation by raising interest rates, a new report suggests that a more insidious factor is at play: corporate greed.
The report, released last week by Accountable.US, a consumer-advocacy group, accuses some of the largest S&P 500 food and consumer companies of raising prices to boost their profits even as the Fed raised interest rates to control inflation. The report calls this practice “greedflation” and says it has enabled these companies to increase their net income and reward their shareholders with stock buybacks and dividends.
“Higher interest rates haven’t stopped S&P companies, especially in the big food industry, from inflating consumer prices despite reporting billions in extra net earnings and over a trillion dollars in giveaways to wealthy investors,” said Liz Zelnick, director of economic security and corporate power at Accountable.US, in a release.
The report cites examples of companies like PepsiCo, General Mills, Tyson Foods, Ulta Beauty and Kimberly-Clark that have admitted to benefiting from higher prices on their earnings calls. For instance, PepsiCo chairman and CEO Ramon Laguarta said the company “might have to take additional pricing” and a General Mills executive said the company had gotten “smart about how we look at pricing.”
According to the report, PepsiCo’s net income went up by 16.9% to nearly $9 billion, and it spent more than $7.6 billion in stock buybacks and dividends in 2022. General Mills saw its net income increase 16.5% to $2.7 billion. Ulta Beauty’s FY 2022 net income went up 26% to $1.2 billion, and Kimberly-Clark’s net income increased 6.3% year-over-year to nearly $2 billion.
The findings add to the idea that corporate greed can be a driver of inflation, referred to by some as “greedflation.” Paul Donovan, chief global economist at UBS Global Wealth Management, defines it as “profit-led inflation” – when companies use the cover of broad-based price increases to raise their own prices more than they have to.
“Profit-led inflation is when companies use the cover of broad-based price increases to raise their own prices more than they have to,” Donovan said in an interview with Yahoo Finance.
Corporate profits have contributed disproportionately to inflation, accounting for more than half of the price growth in the nonfinancial corporate sector since the second quarter of 2020, while labor costs have contributed less than 8%, according to data from the Bureau of Economic Analysis.
Inflation has slowed down since its peak in June 2023, when it reached a four-decade high of 9.1%, but it is still above the Fed’s 2% target. The Fed has raised interest rates 10 times since the start of the pandemic to control inflation, but this has not stopped corporate profiteering and has created risks of recession.
“Corporate greed is a stubborn thing and requires serious action from Congress. The Fed has not seen an adequate return on its investment in a policy that has already created fissures in the economy that could lead to recession. It’s just not worth it,” Zelnick said.
The report calls for congressional action to curb corporate greed and protect consumers from price gouging. It also urges the Fed to reconsider its policy of raising interest rates and focus on other tools to address inflation.
Relevant articles:
– ‘Greedflation’ is the new inflation as corporate profits balloon: report, The Hill, 06/19/23
– ‘Greedflation’ is replacing inflation as companies raise prices for bigger profits, report finds, MarketWatch, 06/14/23
– Fed will keep rates high thanks to inflation fueled by corporate greed, investors say, The Edge Singapore, 06/12/23
– Hiltzik: Corporate profit-seeking caused inflation, Los Angeles Times, 06/11/23