Let’s take a very simple fictitious example: a loaf of bread. We know that during the pandemic, supply chains have been disrupted and the cost of transporting goods has increased. We also know that the conflict in Ukraine has affected the price of gasoline and wheat. It is therefore expected that these different economic realities will have an impact on the price of a loaf of bread. These are various already well-known causes of the inflation that we are experiencing today.
In this context, it may also be tempting for a grocer to increase the price of a loaf of bread a little more, to add to his profits. He then realizes that, since consumers are expecting higher prices, his additional profits are likely to go unnoticed. It’s the fault of inflation, some will say. This inflation that has such a broad back…
This temptation of our fictitious grocer illustrates a very real phenomenon, and better and better explained by various studies since the beginning of the year. Last spring, an initial analysis by the Canadian Center for Policy Alternatives (CCPA) even calculated that up to a quarter of current inflation could be attributable to the rise in corporate profits. And another report, by Canadians for Tax Fairness, also detailed the role corporate profits play in driving up prices for consumers.
Let’s put it simply: while it is true that many companies’ expenses have increased since the start of the pandemic, they have more than compensated for this situation by ensuring that their revenues increase even more. And if I took a food example to illustrate this phenomenon, it is not by chance. The Canadian giant Loblaw (owner of Maxi, Provigo and Pharmaprix in particular) increased its profits by 40% in the first quarter of 2022 compared to the same date last year. If a good part of this increase comes from the pharmacies of the conglomerate, its food sector is also increasingly profitable. While many ordinary families are struggling to pay their grocery bill, we understand that this company in particular has been the subject of several public criticisms in recent months.
Are these additional profits of large Canadian companies redistributed to their workers? A second CCAP study published in June shows that no. Economist David Macdonald has compared the current economic recovery to those that have followed the recessionary periods of the past 50 years. His charts show that, while in the past workers have benefited from significant wage increases during recoveries, the benefits of the post-pandemic “reopening” have mainly inflated corporate profits. The salaries of CEOs of major Canadian companies, on the other hand, have increased by 23% in 2021.
Meanwhile, ordinary workers are taking the brunt. Admittedly, in certain areas particularly affected by the labor shortage, wages are tending to increase and general working conditions may have improved for some time. However, these increases vary greatly depending on the sector of activity, between private and public, depending on whether or not the employment sector is unionized and depending on the more or less precarious status of the workers. And in general, the growth of the profit margin of companies remains much higher than that of the salaries of employees.
Yet many business figures are trying to warn the public against a general rise in wages. We are told that improving workers’ compensation could amplify the phenomenon of inflation and drive many employers out of business. This argument is weak. Not only are Canadian companies raking in record profits on average, but the share of the benefits of the economic recovery going to workers has reached a historic low.
To discourage popular and political pressure on wage increases, groups that defend the interests of businesses are trying to highlight the example of SMEs that have particularly suffered from the pandemic, in sectors such as tourism or catering. This communication strategy of course has the effect of hiding the financial reality of large companies like Loblaw. In short, we try to hide the rule by insisting on exceptions.
In this context, yet another study, published by the Institute for Socio-Economic Research and Information (IRIS) last week, responds to this campaign of distrust of wage increases and seeks to demonstrate why it would be important, for a fair recovery, to take a further step in this direction. The authors of the study also suggest measures to limit the capacity of certain companies to increase their prices sheltered from competition.
In all the talk about the causes and possible solutions to the current inflation, it seems that the growth of corporate profit margins is the element that is discussed the least. The question is worrying, because we are dealing with an economic recovery which, according to a set of indicators, is for the moment mainly benefiting the better off and leaving ordinary people behind. And it is predictable, because in this second decade of the 21e century, the rampant growth of inequality has become something of a non-news. That shouldn’t stop us from continuing to dig into the problem and come up with tangible solutions.