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The Untold Story of Inflation: Corporate Profits Are the Real Culprit

By Ivana Saula
Canadian Director of Research

Over the last few months, inflation has been running rampant causing a rise in prices, the cost of living, and cutting into real wages of workers. Mainstream media has blamed high inflation on government spending during the pandemic, and increasing wages as culprits. Yet, wages have increased only slightly (3.3%), when compared to the consumer price index (8.1% June 2022), meaning workers are experiencing a wage cut, not a raise, and as such, increasing wages cannot be driving inflation. We are told that the only solution now is to contract the economy, and cool it off.

But the story that’s not being reported on reveals a different root cause.

Let’s first address increasing monopolization of businesses, and less competition among them. Under these conditions, corporations have more market power, and as such, they have leveraged disruptions in supply chains to increase prices of practically everything. We are being told that supply-chain issues have increased the cost of products and goods we buy, and those costs are being passed on to consumers. At the same time, consumers don’t have actual choice in purchasing certain products and goods, just think of airlines in Canada, gas, telecommunications, to name a few. As a result, the higher prices we are all paying are making companies record profits.

The Canadian after-tax profit of corporations as a share of Canadian GDP sits at 18.8%, and in the United States, corporate profits have been the highest in 70 years. Billionaires have earned an additional $USD 1.7 trillion during the pandemic, and CEO pay is now 350 times the average workers’ pay. As corporations make record profits, they’ve used that money to purchase their own company’s shares of stock, further increasing their market value. So, what is actually driving inflation is profit-price inflation, that is, corporations raking in record profits and overstimulating certain sectors of the economy, rather than inflation being driven by increasing wages.

Certain sectors have contributed to inflation more than others, particularly the energy sector, and as you may have guessed, oil leads the pack. Despite of what is being reported on in the media, global supplies of oil have actually increased, not decreased. But, in sectors where there’s a high level of monopolization, or where a few businesses act like cartels, product pricing isn’t set by the laws of supply and demand, rather by, fears and uncertainty of scarcity. High oil prices decrease growth in oil-importing countries, while the U.S. dollar appreciates during geopolitical instability, further impacting countries that import oil since they pay for oil and their debts in USD.

The other part of the story that you’ve likely not heard is that inflation benefits countries that carry debt; inflation reduces the real value of the debt. Inflation also reduces the real interest rate paid on servicing debt for both governments and businesses.

On the other hand, high inflation slows economic growth, which hurts workers in the long run, as they stand to lose work and their livelihoods. Worse yet, the economic slowdown could cause a recession, and we’ve seen how disastrous that scenario is for workers and communities.

 

 

So, what’s the solution?

Progressive economists are providing plenty of sound solutions, most of which are being ignored, as governments pursue the neoliberal agenda, and a solution that’s quick but comes with a lot of casualties, those mainly being workers.

Canadian economist, Jim Stanford along with other progressive economists, points to several long-term solutions that get address the root of the problem. Ballooning profits in the energy sector, particularly oil need to be curbed through price controls, and public provision of services in sectors that are known to be driving high inflation. Rather than reversing growth in every sector of the economy, the government should focus on those that are the real problem. Another measure that would address inflation is increasing taxation for higher income households and corporations.

Certain sectors are heavily concentrated in the hands of a few corporations who are then able to coordinate pricing, which often isn’t subject to supply and demand. These actions indicate the kind of market power businesses have, while on the other hand, worker power (who are consumers of goods and services) is weakened.

Most importantly, and likely the only way worker’s wages will increase is through stronger unions, not only in terms of more organizing efforts, but also through speaking out vocally against an agenda that is intent on making workers’ pay for the inflation crisis and letting the real culprits off the hook.

Stay informed, ask questions and get involved. As those who stand the lost the most in the “fight against inflation”, it is critical workers understand and impact policy making through supporting parties that understand what the fight against inflation is really about. We are on an irreversible course of policies that will make us pay for the inflation.

For more information on the untold story of inflation, you can visit these links;

https://centreforfuturework.ca/wp-content/uploads/2022/06/Jacobin-Reprint-Inflation-Why-and-How.pdf

https://robertreich.org/post/685804888044765184

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This article was originally posted on the IAM Canada website. View the original post here: The Untold Story of Inflation: Corporate Profits Are the Real Culprit