Deciphering the Impact: Corporate Profits Fueling Inflation Despite Declining Business Costs

In the past two years, inflation has eased, and supply chains have stabilized, yet American households are not reaping the benefits of a more secure economy. An analysis released on Thursday questions why the prices of consumer goods and services haven't seen a decline, despite the improved economic conditions.

According to the economic justice think tank, Groundwork Collaborative, the answer lies in the fact that high prices during the pandemic were not solely due to increased labor and production costs but were, in part, the result of deliberate price gouging by corporations.

During the upheaval caused by the pandemic, businesses took the opportunity to pass on costs to consumers and added extra amounts to bolster their profits, alleges the group. Shockingly, they claim, this practice continues.

Groundwork conducted an analysis of corporate earnings reports from 2021 onwards, focusing on industries facing soaring prices. The research revealed CEOs openly boasting about raising prices beyond cost increases to boost profits, using supply chain issues and pandemic-induced economic turmoil as justifications.

Even now, more than two years later, companies such as Kimberly-Clark, General Mills, and PepsiCo continue to increase prices, benefiting from rising profits while working families struggle to afford essentials.

Groundwork's findings indicate that corporate profits, not labor and business costs, accounted for 53% of price increases in the second and third quarters of 2023. This is a stark contrast to the four decades before the pandemic, where profits only drove 11% of price growth.

While business costs rose by about 1% since early 2023, some sectors experienced drops in input costs for transportation, warehousing, and fuel. Yet, consumer prices increased by 3.4% in the same period.

The example of the U.S. diaper industry illustrates this point. Procter & Gamble (P&G) and Kimberly-Clark, controlling 70% of the market, have kept diaper prices high for American families despite a drop in wood pulp prices, a key diaper component.

Groundwork Collaborative is calling for action against corporate price gouging, emphasizing the need for Congress to review expiring provisions from the 2017 corporate tax cuts. They assert that the tax code should support a robust and equitable economy, discouraging profiteering by corporations.

In conclusion, the report raises a fundamental question about the kind of economy the nation desires—one where corporations exploit crises at the expense of workers and families or one where corporations are held accountable, allowing everyone to thrive.

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