[Point de vue de Maïka Sondarjee] Inflation and profits, hand in hand

The author is an assistant professor at the School of International Development and Global Studies at the University of Ottawa. She directed the collective work Feminist approaches in international relations (PUM, 2022) and wrote the book lose the south (Ecosociety Editions).

Current inflation is not just coming from post-pandemic market distortions. It is at least partially attributable to the rise in corporate profit margins. The recent rise in inflation would be due at least to 54% (in the United States), 59% (in the United Kingdom) and 83% (in Spain) to the decision of companies to increase their profits. This is according to a study published by Oxfam last week.

On December 8, the Canadian Union of Public Employees corroborated that in 2022, large Canadian companies had made record profits (unlike small and medium-sized businesses). As a proportion of Canada’s GDP, the after-tax profits of large corporations would have reached their highest level in the last 60 years. In the months of April to June 2022, these profits would have accounted for 20% of the country’s GDP, more than double the average between 1960 and 2000.

In the goods and services business sector in the United States, prices would have increased by 6.1% annually in the second quarter of 2020, compared to an increase of approximately 1.8% before the pandemic. According to calculations by the Economic Policy Institute, more than half of this price increase (53.9%) is due to higher profits, while wage increases contribute only 8%. In comparison, between 1979 and 2019, profits only contributed about 11% of the price increase, and the price of labor for 60%.

An article from the Federal Reserve Bank of New York demonstrates that high inflation is often correlated with increased profits. In short, companies sometimes take advantage of inflation to increase their profits. Calculating an aggregate of US industries during 2021 and the first quarter of 2022, the increase in profit would be greater than inflation in the calculation of final prices.

The argument of the authors of the article is that when inflation is high (but not too high), companies take advantage of it to increase their profits to compensate for their losses. So, if inflation is really too much for consumers to bear, companies will restrain themselves from increasing their profits, but if it is barely sustainable, they will.

All other things not being equal, this does not mean that companies necessarily make “more money” in the end. But that to avoid diminishing their amount of net gains at the end of the year, they will increase their profit margins to alleviate other difficulties related to supply chains and other problems related to the pandemic. Consumers will be able to pay the price. And it’s a safe bet that when these problems resolve, profit margins will remain the same.

According to the Economic Policy Institute, it is logical to think that the pandemic is the primary source of inflation: “The inflationary shock has occurred in practically all the rich nations of the world – it is very difficult to find a specific policy to a country that is linked to inflation. »

Yet not all businesses have been affected in the same way. While there were shortages and supply problems in many sectors, consumers often bought more goods than usual, reallocating their budget items “travel”, “gym”, “restaurants and others in the purchase of material goods. Companies that had no supply problems could therefore increase their prices (and their profits) without worry.

In periods of economic crisis where unemployment is high, companies must raise wages and seek new markets for their products. During the pandemic, the major problem was more in the supply chains. Thus, according to many observers, inflation is not (only) due to the overheating of the job market and “employees who no longer want to work at minimum wage”. It is also due to the fact that, rather than reducing their profit margins, companies place the burden of inflation on consumers.

Implications for public policy

To avoid this race for profits, the Economic Policy Institute and Oxfam believe that governments should tax companies and the wealthy more. According to the Oxfam report, an additional tax on the “ultra-rich” would at least partially remedy the growing inequalities in Canada. The organization calculates that an additional tax of 2% for millionaires, 3% for those with more than 50 million assets and 5% for billionaires, would increase the country’s income by 50 billion per year. .

This is not a heresy, since even the “ultra-rich” put it forward. US investors Warren Buffett and Bill Gates are publicly asking their government to raise their taxes. It is obviously not a question of taxing their wages (the wealth of these not coming from their paycheck), but of regulating the profits linked to goods, properties and corporations.

In Canada, the ultra-rich are also campaigning for an increase in their taxation. Resources in Motion is a group of wealthy or upper class young people who want more redistribution of wealth. Jon McPhedran Waitzer, a member of the group’s organizing committee, tells me that his family safety net allows him to never worry about finances. But the goal is for these safety nets to be universal.

According to Mr. McPhedran Waitzer, “as a society, we have the resources to make these investments — they’re just hoarded in the wrong hands”. These voices are multiplying across the country. The 200 members of Resources in motion have recently joined forces with the Canadian collective Taxons la wealth.

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