GREEDFLATION
margin to 1.6 percentage points.
A year later, its pricing strategy bore even greater fruit: Sales volume had shrunk by 3% year to year, but thanks to another 10% average price increase, its profit margin widened by 1.5 percentage points to a healthy 48.2% of net sales.
The chemical giant DuPont was candid about how the supply logjam and other shocks enhanced its ability to raise prices and make them stick.
“It’s a constructive market for pricing,” Chairman and CEO Edward D. Breen said in February 2021. DuPont’s chief financial officer, Lori Koch, referred to cost increases in raw materials in adding, “there’s ... a couple of recent force majeures in the industry that’s making the price environment even more conducive.”
Asked if a decline in raw material prices would prompt DuPont to roll back its prices, Breen said not to worry. “If a recession hits, and commodity costs come down,” he said, DuPont’s intention would be “maintaining more price than the decrease on the commodity.”
Oil companies were especially adept at extracting profits from the volatile pandemic-era markets, largely because they’ve operated amid sharp runups and declines in oil prices for many decades.
When demand all but disappeared in 2020 and world oil prices collapsed, Exxon Mobil and Chevron, among other oil companies, shut down their least profitable production facilities, as they had done in the past. But when demand began to recover in 2021 and oil prices spiked with the Russian invasion of Ukraine in early 2022, they were slow to scale production back up.
“We’ve created this hole with a lot more capacity coming off-line without a whole lot of new capacity ... coming on,” Darren
Woods, chairman and chief executive of Exxon Mobil, said last July. “So we’ve got this gap, ... which has led to a record, record-high refining margins.” Woods said that new refining capacity had been delayed by the pandemic and the poor economics of oil product in 2020 and early 2021, and would soon appear.
Corporations’ ability to put through price increases derives from more than consumer docility. Those with strong brands, a reputation for quality, and products seen as indispensable will typically find it easier to retain customers.
That’s the explanation offered by Procter & Gamble CEO Andre Schulten to investors last July: “Our categories being daily-use categories that consumers don’t deselect even when they see high levels of inflation, our focus on Irresistible Superiority, our ability to make strong value claims based on that superiority ... positions us well to compete in the environment.”
Another factor is a dearth of competition. “Companies are not raising prices solely because of the increasing costs of supplies and components and of labor,” former Labor Secretary Robert B. Reich told a House committee on May 7, 2022. “They’re passing these costs on to consumers in the form of higher prices ... because they can. And they can because they don’t face meaningful competition.”
Since the 1980s, Reich testified, “two-thirds of all American industries have become more concentrated.” That allows them to raise prices “without risking the possibility of losing customers, who have no other choice.” For businesses in this enviable position, publicity about inflation gives them cover to raise prices and funnel the gains into greater profits.
Nor should anyone expect price reductions as costs come down. Corporate executives have generally signaled that they expect price increases they have already instituted to remain in place.
If one properly acknowledges the contribution of corporate profit-seeking in inflation, two things become clear. One is that the Fed has grasped the wrong end of the stick in its battle against high prices. That may not be surprising, because monetary policy is the only tool the Fed possesses.
Another is that corporations’ price-setting powers are the result of policy choices by successive congresses and administrations. They’ve stood idly by as mergers and acquisitions reduce competition throughout the economy and have allowed companies in some industries to collect windfall profits without limitation.
Stiglitz and Regmi see some glimmers of hope that decades of indulging big business may be reversing. Under Chair Lina Khan, the Federal Trade Commission has signaled a more aggressive stance against anticompetitive mergers. The Inflation Reduction Act enacted last year incorporated new incentives for production of renewable energy sources, which could counteract the market power of big oil companies. Providing child care and raising wages would bring more people into the labor force.
But America is still big business’ playing field. For even longer than the last year we have been paying the price.
Michael Hiltzik is a columnist for the Los Angeles Times.