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Two routes to lower inflation

from Dean Baker  

Inflation has stayed higher longer than I expected. I got that one wrong. I am happy to acknowledge my mistake, but I also want to know the reason why. This is not a question of finding excuses, I want to know why the economy is acting differently than I thought it would.

The most obvious reason is the supply chain disruptions that led to the original jump in prices have lasted longer and been more far-reaching than I expected. Part of this is due to the persistence of the pandemic, with the delta and omicron strains disrupting economies around the world.

The other major source of disruption is Russia’s invasion of Ukraine. This has blocked the supply of many items manufactured in Ukraine, but more importantly, the war reduces its ability to grow and sell wheat and other crops on world markets. There is also the risk of losing Russia’s oil and gas, which propelled oil prices to levels not seen in more than a decade.[1]

The idea that inflation would spike under such circumstances should not be surprising. As has been widely noted, the jump in inflation was worldwide, not just in the United States. The increase in the inflation rate was comparable in the European Union and the United Kingdom, so it obviously was not just a story of excessive stimulus in the United States. The break-even inflation rate on German 10-year government bonds are now essentially the same as in the United States, indicating that investors expect inflation in the two countries to be roughly the same over this period.

The logic here should not be hard to understand. The normal delivery of goods and services was disrupted by the pandemic. Since overall demand did not drop to anywhere near the same extent (due to various stimulus measures), we had shortages of many items, leading to sharp increases in prices.

While there were jumps in demand at various points during the pandemic, associated with the timing of stimulus payments, overall growth has not been extraordinary. Real consumption expenditures for February of 2022 (the most recent month for which we have data) were 4.6 percent higher than they were two years ago, a 2.3 percent annual rate of growth.

The problem has been, and still is, a huge shift from consumption of services to consumption of goods, due to the pandemic. While service consumption was still slightly below its pre-pandemic level in February of 2022, consumption of nondurable goods was up 11.8 percent, a 5.9 percent annual rate of growth. Consumption of durable goods grew even more rapidly, rising 22.6 percent, a 10.7 percent rate of growth.

This jump in demand would have been difficult for the economy to meet even without pandemic-related, and now war-related, supply issues, but definitely overstretched capacity given where the economy is at present. If the pandemic continues to wane, it should mean that consumption will continue to switch back towards services. It should also mean a reduction in pandemic-related supply disruptions, although disruptions associated with the war may continue and could grow worse.

The Optimistic Route to Lower Inflation

It is important to recount the route to the surge in inflation, since it matters for our prospects for reducing inflation. Recounting our historical track record in bringing inflation down after surges that came from fundamentally different sources is not necessarily useful in describing our prospects for bringing down the current inflation spike.

The optimistic path for lowering inflation would be for an end to the supply chain issues that pushed inflation higher. This means an end to the backlogs at ports, an end to the shortage of truckers, and an end to COVID-19-related shutdowns in China and other manufacturing locations. Also, the shift back to services will reduce the extent to which demand for goods is exceeding the economy’s ability to supply them.[2]

The story would be that when these disruptions are ended, or at least ameliorated, the prices of many items would stop rising and even come back down. This should not sound far-fetched. Televisions provide a great example. The price of televisions had been falling gradually for decades. It suddenly surged 8.7 percent in the five months from March of 2021 until August. The index then turned around and fell sharply, so that it’s now lower than it had been in March of last year.

We may also be seeing this story now with used cars and trucks. Used vehicles prices rose 41.2 percent from February 2021 to February 2022, adding 1.1 percentage points to the overall inflation rate. (New vehicle prices rose 12.4 percent over this period, adding 0.5 percentage points to the inflation rate over the year.) Used vehicle prices fell 3.8 percent in March, after dropping 0.2 percent in February. A private index shows an even sharper drop in used vehicle prices, dropping 6.3 percent since its peak in January.

If we don’t see another resurgence of the pandemic, and the war in Ukraine doesn’t escalate further, these sorts of price reversals may be the norm. A wide range of goods that saw sharp increases in price during the pandemic may experience rapid price declines as the economy normalizes further and supply chain problems are overcome.

Apart from the small number of cases where prices are now falling, there is a more general reason why we might expect these price reversals to be common. Prices have hugely outpaced costs during the pandemic. This has led to a large shift from wages to profits, with the profit share of corporate income rising by more than two percentage points since the pandemic began.

If we think that the conditions of competition have not changed in most sectors since the start of the pandemic, it is reasonable to think that the labor and capital shares will return to their pre-pandemic level. Of course, this is not a given. Inertia is a powerful economic force, so it may be the case that even if we return to roughly pre-pandemic conditions, the profit share will remain elevated. But it is still plausible that we would return to pre-pandemic shares. That would increase the likelihood of price reversals like what we have already seen with televisions and may be now seeing with used vehicles.

There is one other point that has been largely neglected in the comparisons with the 1970s inflation. In the 1970s, there was a sharp slowdown in productivity growth. Productivity had been growing at close to 2.5 percent annually in the quarter century from 1947 to 1972. This allowed for rapid wage growth, with wages rising roughly in step with productivity for most workers. This changed in the seventies, with productivity growth falling to just over 1.0 percent annually from 1972 to 1980.

By contrast, we have seen a rise in productivity growth in the last three years, with the rate of growth increasing from just over 0.7 percent annually, between the fourth quarter of 2010 and the fourth quarter of 2018, to a 2.3 percent pace in the years from the fourth quarter of 2018 to the fourth quarter of 2021. This acceleration in productivity growth should allow for healthy real wage growth without inflation.

Trends in productivity growth are notoriously unpredictable, with few economists having expected the major breaks in trend in the post-war era. But it is encouraging that we have seen strong productivity growth through the pandemic, with businesses finding ways to innovate around unpredictable disruptions to supply chains, as well as their workforce. In this respect, it is worth noting that real output is now higher in restaurants than before the pandemic, even though aggregate hours worked in the sector is 7.2 percent lower than before the pandemic.

Rent and House Prices

While we may be getting some good news on price trends with a wide range of goods, in recent months we have been seeing an acceleration in the rate of rent increases. This could be a big factor increasing inflation since the rental components accounts for more than 31 percent of the overall CPI and almost 40 percent of the core CPI.

The underlying issue in higher rents and house sales prices (house prices have been rising at more than double-digit rates since the start of the pandemic), is a dozen years of extraordinarily weak construction following the collapse of the housing bubble in 2006 to 2009. The economy recovered very slowly from the collapse of the bubble, but when the labor market began to look more normal in the five years prior to the pandemic, rent began to outpace the overall rate of inflation. The rise in rents and sales prices did lead to an increase in housing construction, but the pace of construction was likely still below the growth of demand.

The pandemic aggravated the imbalance in the housing market through several different channels. First, and most obviously, the plunge in mortgage interest rates made it far cheaper for people to buy homes. With the mortgage rate bottoming out at under 3.0 percent, prospective home buyers could afford to pay far more for a house.

Another factor pushing house prices higher was the increase of remote work. Tens of millions of people began to work from home during the pandemic. This meant that they needed more space in their house to accommodate a home office. They also had additional money to pay for rent or a mortgage, since they were saving a large amount of money on commuting costs.  It’s not clear how enduring the increase in remote work will be, but it is virtually certain that millions of additional workers will be working remotely, at least part-time, even after the pandemic.

A third factor that boosted housing demand was the eviction moratorium that went in place in April of 2020 and lasted until September, 2021. In an ordinary year, there are close to 1 million evictions. This number fell by more than half during the moratorium. While there were warnings of an explosion in evictions when the moratorium ended, there was no huge surge, even as the rate of evictions moved closer to normal.

It is not good to see people evicted from their home, but keeping tenants in their home does reduce the number of units that are coming on the market. The moratorium helped increase the demand for housing over the last two years.

In the four years from the fourth quarter of 2017 to the fourth quarter of 2021, the number of occupied units increased by more than 7.2 million. By contrast, in the prior four years the number of occupied units increased by only 5.2 million units. This is likely a big part of the story of the run-up in both sales prices and rents, as vacancy rates fell to near record low levels.

However, we may be reaching a turning point in the housing market as well. The Fed’s moves on interest rates have the most direct impact on the housing market. Even though the federal funds rate has risen by just 0.25 percent, the interest rate on 30-year mortgages has already gone up by more than 2.0 percentage points from its pandemic low.

It is still early to get good data on the impact of this rise mortgage rates, but there is evidence that it has already substantially slowed the housing market. Applications for purchase mortgages are down by double-digit amounts from their year ago level. There is also considerable anecdotal evidence of realtors reporting a qualitative shift in the market, with many sellers now making cutting prices from their original listing price.

Another factor that can put downward pressure on sales prices and rents would be an increase in the rate of housing completions. The rate of housing construction rose sharply in the pandemic, rising from less than 1.3 million in 2019, to close to 1.8 million in recent months. However, there has been no comparable increase in the rate of housing completions, which is still running at just over 1.3 million annual rate.

The gap is another aspect of the supply chain crisis. Builders are finding it difficult to get the materials they need to complete a home. There are shortages of everything from lumber to garage doors. If we can resolve supply chain issues, the gap between starts and completions should close quickly. It will take several years to make up the shortfall in supply resulting from more than a decade of severe under building, but increasing completions by 500,000 to 600,000 a year should help to alleviate the severe shortages being seen in many areas.

In short, there are important factors on both the demand and the supply side that should alleviate the upward pressure on rents and house sale prices. There is always a considerably amount of inertia in the housing market, but we may not see as a high rate of rental inflation as many analysts are now expecting.

In sum, there is a plausible story whereby inflation begins to come down in the not distant future. In this scenario, instead of seeing a wage-price spiral, we see inflation gradually fall back to levels that most of us would feel comfortable with.

The Bad Inflation Story

We can hope for the good inflation story, but there is also the bad one that needs to be taken seriously. In this view, we are already seeing a wage-price spiral. High inflation is changing people’s expectations, with workers now looking to get higher wage increases to compensate for the high inflation of the prior year. A round of wage increases that compensate for last year’s inflation will put more upward pressure on prices. This sequence continues, with inflation rates getting to ever more unacceptable levels.

The seventies inflation was eventually broken by the Fed pushing its overnight interest rate to more than 20.0 percent. This led to a steep recession in 1981-1982, with the unemployment rate peaking at just under 11.0 percent.

The recession brought down inflation by forcing workers to take pay cuts. With double-digit unemployment, few workers had the bargaining power to secure wage gains that kept pace with inflation. This reduced cost pressure and led to a rapid drop in the inflation rate to a more moderate pace.

It is important to recognize that this is a process involving enormous pain for tens of millions of people. The media have been full of reports of people who have trouble paying for gas and food with the recent rise in prices. In fact, most workers have had pay increases that have roughly kept pace with inflation since the pandemic, with pay for most workers at the bottom end of the wage distribution actually outpacing inflation.

However, if the Fed brings on a serious recession to combat inflation, many of the people in these news stories, who are now struggling to pay for food and gas, will be unemployed, or at least will have endured a stretch of unemployment. (Most spells of unemployment are relatively short.) Those who have jobs will likely not be getting pay increases that keep pace with whatever rate of inflation the economy is seeing at the time. Their ability to demand higher pay from their employer, or to seek a new job, will be severely limited by high unemployment. In other words, the process whereby inflation is brought down, will not be good news for them.

This point is important to keep in mind. There is not a simple and painless way to bring down the inflation rate through interest rate hikes by the Fed. It is not just a matter of turning down the thermostat a few notches. The rate hike put in place in March, coupled with a commitment to further hikes over the course of the year, has cooled down the housing market in a way that was necessary. It will also have a modest impact in slowing inflation in other sectors.

But the sort of rate hikes put in place by the Volcker Fed at the start of the 1980s would, at least in the short-term, make life far worse for the bulk of the population, even if there may be longer term benefits in the form of a lower and stable inflation rate. Everyone should be very clear on this point.

The Pandemic and the War Created Inflation and There Is No Simple Way to Bring it Down

The main points here are that the rise in the inflation rate as the economy reopened from the pandemic was overwhelmingly the result of inherent problems with reopening, and now disruptions created by the war in Ukraine. We can see this by virtue of the fact that most of Europe is now seeing comparable inflation rates. The stimulus provided by the Biden administration undoubtedly increased the inflation rate somewhat, but we would still be seeing uncomfortably high rates of inflation, along with higher unemployment, even without this stimulus.

There are reasons for thinking that the inflation rate will slow sharply as supply chain problems get resolved. We have already seen this sort of price reversal with some items, most notably televisions, where a sharp price last summer has been completely reversed in the last seven months. While the Biden administration can try to help in working through supply chain bottlenecks, there is no simple way to resolve this problem.

There is also no happy alternative path to lowering inflation. The route pursued by the Fed under Volcker subjected tens of millions of workers to unemployment. The mechanism was to undermine workers’ bargaining power, so that they would be forced to take real wage cuts. If people are struggling now to pay for gas and milk, their situation will not be improved if they lose their jobs and/or get lower real wages when they are working.

[1] FWIW, it seems unlikely that much Russian oil would be removed from world markets. Even if European countries join the United States in boycotting Russian oil, it would most likely be sold to other countries, most importantly India and China. The net effect on world supplies is likely to be limited.

[2] It is worth noting that demand for cars and other big-ticket items is to some extent self-limiting. People who bought a car or refrigerator in 2020 or 2021 are unlikely to buy another one in 2022.

  1. Craig
    April 27, 2022 at 8:23 pm

    “There is not a simple and painless way to bring down the inflation rate through interest rate hikes by the Fed.”

    This a correct statement, but there is a simple yet powerfully effective way to end inflation and that is to implement the policies of the new monetary paradigm. A 50% discount/rebate policy at retail sale for virtually everything ends and reverses the recent bad inflation immediately. It also stops the “necessity” of wage hike demands because everyone’s purchasing power is immediately doubled and potential demand for every enterprises goods and services is also doubled so both consumer and enterprise’s self interests are integrated with this single policy.

    The FED needs to be the guarantoor of every economic agent individual and commercial by distributing the rebate back to the retailer so they cn be made whole on their overheads and profit margins…instead of being the handmaiden of the private banks and their monopolistic paradigm of Debt Only. Michael Hudson is correct that debt jubilees were used to reset economies and social contracts by empires prior to Rome. Only problem was the debts always came back meaning that periodic debt jubilees are mere palliatives (and when finance whether from the palace or the private banks becomes so powerful that they become “the powers that be”.) That’s why integrating debt jubilee directly and continuously into the economic process with a 50% debt jubilee policy at the point of consumer loan signing is necessary…to actually solve the otherwise inevitable build up of debt.

    Look at it. Think about it. And don’t deny the immediate, continuous and universally beneficial temporal universe effects of these two policies.

  2. Ken Zimmerman
    April 28, 2022 at 11:29 pm

    From the Guardian, April 19, 2022 (with edits and corrections)
    Economists miss the boat on inflation. Have, in my view always missed that boat.

    One widely accepted narrative holds that companies and consumers are sharing near equally in inflationary pain, but a Guardian analysis of top corporations’ financials and earnings calls reveals most are enjoying profit increases even as they pass on cost increases to customers, many of whom are struggling to afford gas, food, clothing, housing and other basics.

    The analysis of Securities and Exchange Commission filings for 100 US corporations found net profits up by a median of 49%, and in one case by as much as 111,000%. Those increases came as companies saddled customers with higher prices and all but ten executed massive stock buyback programs or bumped dividends to enrich investors.

    In earnings calls, executives detailed how even as demand and profits rose post-vaccine, they passed on most or all inflationary costs to customers via price increases, and some took the opportunity to add more on top. Margins – the share of sales converted into profits – also improved for the majority of the companies analyzed by the Guardian.

    Economists who reviewed the data say it’s more evidence of a clear reality: Purchasers are taking a financial hit as companies and shareholders profit or are largely shielded.

    “It’s obvious that corporations are trying to pass on any form of short-term pain they might be feeling … and that’s serving the top, wealthiest class instead of those in need of fair wages or products that are affordable,” said Krista Brown, a policy analyst with the American Economic Liberties Project.

    Media framing likely influences public perception. News reports of Hershey’s multiple price hikes over the last year read like so many dire reports on inflation’s pervasive toll. The company, which owns popular brands like Reese’s, KitKat and Skinny Pop, has been cast as the “latest victim of ever-increasing inflation”.
    But a closer look at the company’s financials suggests a vastly different reality. Hershey’s net profits spiked 62% between the fourth quarters in 2019 and 2021, its operating margin widened, and it recently rewarded shareholders with $200m in stock buybacks.

    Still, customers will pay even more for candy bars in 2022 as Hershey aims for even higher profits: “Pricing will be an important lever for us this year and is expected to drive most of our growth,” CEO Michele Buck told investors.

    Similarly, a Kroger executive told investors in June, “a little bit of inflation is always good for our business”, while Hostess’s CEO in March said rising prices across the economy “helps” it profit.
    The pandemic, war, supply chain bottlenecks and pricing decisions made in corporate suites have created a “smokescreen”, said Lindsay Owens, executive director of the Groundwork Collaborative, which tracks companies’ profits. That obscures questionable price increases, she added, and allows businesses to be portrayed as “victims”.

    “That gray, nebulous area is fertile ground for companies right now, and you hear about it in their earnings calls,” Owens said. “Inflation itself is the opportunity.”

    The Guardian’s findings are in line with recent US commerce department data that shows corporate profit margins rose 35% during the last year and are at their highest level since 1950. Inflation, meanwhile, rose to 8.5% year over year in March.
    The Guardian’s analysis is the first to take a granular look at a cross-section of companies across a range of industries. It compared the most recent quarter’s profits to the same quarter two years prior, pre-pandemic. Price increases were obtained by checking earnings reports, though those often lacked specifics.
    The data really cannot be definitive, but does show how a wide sample of companies have raised prices even as profits jumped. In earnings call after earnings call, executives made no secret of their strategies.

    • As gas prices soared, Chevron’s 240% profit spike was part of “the best two quarters the company has ever seen”, prompting a dividend increase and assurances it would keep production low to maintain high prices.
    • Steel Dynamics profits increased 809%. The company was “not materially affected by inflation” as higher prices “exceeded” increased supply chain costs.
    • Fertilizer giant Nutrien’s profits shot up by about $1.2bn on “higher selling prices [that] more than offset higher raw material costs and lower sales volume”.
    • Nike’s 53% profit increase driven by higher prices was only “partially offset” by supply chain and inflationary cost increases.
    • Keurig-Dr. Pepper’s “significant pricing actions” and productivity outpaced inflationary costs, leading to an 83% profit jump.

    The analysis found commodity companies trading in oil, timber, rubber, meat, wheat, steel and mining recorded the highest profit increases, while restaurants and retailers saw comparatively lower improvements, or losses. Commodity price spikes reverberate down the supply chain, eventually hitting consumers, noted Martin Schmalz, an Oxford University economist.
    The Guardian’s data, he added, objectively shows a massive “transfer of wealth” from purchasers, who pay higher prices, to shareholders and investment firms that reap the benefits.
    The potential consequences are enormous and global. Inflation may already have sealed Democrats’ midterm fate, and in France, Marie Le Pen, a far-right candidate from a Holocaust-denying party, gained on her liberal opponent as she positioned herself as the “pricing power” candidate taking on the “oligarchy” and “elitism”.

    But even as profits skyrocket, many have dismissed the idea they play a meaningful role in inflation, including Larry Summers, a former Obama adviser with clout in the Biden White House. He previously called profiteering claims “business bashing” that are “terrible economics”. [Summers should know; he’s a terrible economist.]

    A Hershey spokesperson stressed that its growth was driven in part by volume, and it would be re-investing much of its profits to meet growing demand: “These investments are where we are making the biggest use of cash,” he said.

    Financial observers have varying takes on whether companies are “profiteering” or “price gouging”, or simply profiting. George Pearkes, an analyst at Bespoke Investment, pointed to Caterpillar, which recorded a 958% profit increase driven by volume growth and price realization between 2019 and 2021’s fourth quarters. Eliminating price increases may have dropped the company’s 2021 quarter four operating profits slightly below the $1.3bn it made in 2020.

    “This isn’t price gouging … and it shows pretty concretely that there’s a lot of nuance here,” Pearkes said, adding profiteering is “not the primary driver of inflation, nor the primary driver of corporate profits”. [It just appears so.] However, he added that it’s reasonable to question whether Caterpillar should have passed on its cost increases.

    The company also spent $5bn on buybacks last year, and $1.3bn for a quarter of profits is still high, Brown noted, especially in the context of inflation eating into workers’ wage gains.
    “Companies have access to massive capital,” she said. “They could have one or two years that are more painful – not even more painful, just less profitable for their investors, and they’re choosing not to.”

    One industry that neatly illustrates how corporations have used the current imbalance of supply and demand to increase their profits is housing.

    In recent months, the white-hot market for newly built houses shut out many Americans as average sale prices shot above $500,000. The popular explanation: inflation, supply chain squeezes and building material costs.

    But another less publicized factor contributed. Two of the nation’s largest builders, PulteGroup and Lennar, intentionally kept home starts low and took other steps seemingly designed to maintain high prices by restricting supply.

    “We could sell another 1,000 homes in the quarter if we wanted to without too much effort. It just doesn’t make sense to do that,” Lennar co-CEO Jon Jaffe told investors in an earnings call. Lennar’s profits are up 78%, while PulteGroup’s jumped 97%. Lennar didn’t respond to a request for comment.

    A step up the supply chain, wood producer Boise Cascade saw profits spike more than 1,100%, which it largely attributed to “unprecedented” pricing in 2021. Executives boasted that improved margins were only “offset partially” by inflationary and supply chain costs.

    And at Home Depot and Lowe’s, where profits are up 38% and by about $2bn, respectively, volume and pricing drove sales as purchasers paid four times more for lumber.

    Observers note a common thread along the supply chain: consolidation. By some estimates, Home Depot and Lowe’s control about one-third of the home improvement market, and hold even more of consumer lumber. Lennar and PulteGroup control about 11% of the home building market, though that figure is probably much higher in many metro regions, and Boise Cascade controls about one-third of the plywood market, according to a Forest Economic Advisors analysis.

    “Those who have market power can raise prices above what’s considered fair market value,” Brown said. “We’re at a point in our market concentrations that we haven’t seen ever before.”
    The influence of consolidation is pervasive. A Procter & Gamble executive noted to investors it and Kimberly Clark benefit from controlling 70% of the diaper market. It’s what Owens called a “concentration of necessities”. Reports say customers have “shrugged off” diaper cost increases, but antitrust advocates note very limited alternatives exist for many consumers. After multiple price increases, Procter & Gamble’s profits are up and Kimberly Clark’s are down, though the latter expects to “cover the majority of inflation with pricing” in 2022.

    Similarly, Hershey’s 30 companies control at least 46% of the candy market. Prices on some of its products are probably up by double digits while the CPI index shows candy is up 7.6%.
    Concentration is particularly pronounced among commodity companies, a problem highlighted in the grain market. CPI data shows bread and cereal prices increased by 30% and 7% between 2019 and 2021’s fourth quarters, while wheat skyrocketed to an all-time high in March as war largely eliminated Ukrainian and Russian crops.

    Meanwhile, four large grain producers control about 90% of the market. Among them are Archer Daniels Midland, whose profits jumped 55%, and Bunge, whose profits swung by about $280m. Three companies control 73% of the cereal market.
    That level of concentration breeds higher prices, said Alex Turnbull, a commodities analyst.

    “When you go from 15 to 10 companies, not much changes,” he said. “When you go from 10 to six, a lot changes. But when you go from six to four – it’s a fix.”

    Depending on the material or good, some commodity prices are set by exchanges, which Pearkes noted largely eliminates some companies’ pricing power. But commodity consolidation can open the door to another form of pricing power: boosting prices by keeping supply low.

    “Price is set by supply and demand at some metals exchange, but what is the supply? That is what the companies determine, no?” Schmalz asked.

    Just as PulteGroup kept housing starts down, oil companies have kept production low while gas topped $7 a gallon in some regions. In earnings calls across the industry, oil executives like Diamondback Energy CEO Travis Stice have promised to keep production flat in the years ahead, “putting returns and, therefore, shareholders first”.

    “No one wants to see that shareholder return program put at risk with volume growth,” Stice said.

    Some companies are enacting price increases in a less direct manner: by eliminating lower-cost products. The CEO of Kohl’s said in a previous interview the store was shifting its merchandise toward higher-end brands like PVH-owned Tommy Hilfiger, where profits are up 183%, because they’re more profitable for Kohl’s.

    Similarly, General Motors profits jumped 49% between the full years in 2019 and 2021 despite selling about a million fewer vehicles. The company said it focused on moving more expensive trucks and SUVs than in previous years, but it also raised prices – a Silverado can now cost over $5,000 more than it did in 2019. That includes two rounds of March price increases just weeks after GM announced record profits and margins.
    Such strategies further squeeze lower income consumers, said University of Massachusetts Amherst economist Isabella Weber.
    “That’s a general trend that can enhance price increases quite dramatically, especially with cars and groceries,” she said.
    Arizona Iced Tea owner Don Vultaggio became a populist hero in April when he declared he’d rather take a hit than push prices above 99 cents: “I don’t want to do what the bread guys and the gas guys and everybody else is doing,” Vultaggio told the Los Angeles Times.

    But Arizona is a privately owned company that doesn’t face shareholders’ wrath. When Target and Walmart declined to pass all inflationary costs on to customers ahead of the holiday season, an investor revolt ensued, and their shares temporarily plummeted.

    “Shareholders are not interested in seeing anyone be cautious with price increases, and in some cases they’re saying ‘let’s throttle supply, let’s see how far we can take this’,” Owens said.
    The surge in pandemic profits has not gone unnoticed. A spate of Senate and House bills aim to rein in excessive profits, while Biden proposals and executive actions target stock buybacks and consolidation. Meanwhile, many consumer advocates and economists argue that enforcing antitrust laws already on the book, or strengthening them, could help reduce companies’ pricing power. Others have argued for the implementation of very targeted price controls on essential items, like bread. [Or just nationalize the essentials.]

    In March, Senator Bernie Sanders began a push to bring back a windfall profit tax last used after the second world war, while Senator Elizabeth Warren introduced similar legislation that focused on oil companies’ profits.

    “The American people are sick and tired of the unprecedented corporate greed that exists all over this country. They are sick and tired of being ripped off by corporations making record-breaking profits while working families are forced to pay outrageously high prices for gas, rent, food, and prescription drugs,” said Sanders.

    Sanders may well be right, but if “sick and tired” Americans vote against the Biden administration in November, his chances of pushing for change will fall. [Maybe to zero.]

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