Big corporations, such as Starbucks, Tyson Foods, and Procter & Gamble have announced price hikes despite the rising inflation. Inflation that we haven’t seen in decades alongside these companies’ announcements of revenue increases at the end of 2021. But there are those that see this as one big excuse for a corporate price hike.
Politicians and economists agree that these companies are taking advantage of the inflation to boost prices beyond what’s necessary. With the Covid-19 virus disrupting the global economic situation, they think these big companies aren’t just passing the rising production costs onto consumers. They believe that they are doing it because they can.
In January of this year, inflation hit an all-time high since 1982, four decades, to be exact. However, the oil, gas, and energy sectors saw a decrease in prices. But this has minimal impact as all the others, including medical care, food, and shelter, and the clothing industries saw an increase.
When the global supply logistics have gone haywire due to the pandemic, transporting goods and materials has become challenging. This resulted in an increase in prices both for the companies and consumers. A situation that the world has seen coming.
On the other hand, consumers experienced a higher purchasing power due to factors such as stimulus benefits, wage increases, and lower interest rates, among many others. This only proves that consumers are willing to pay for the higher price tags, at least in the US. All these scenarios add up to inflation: the demand surpasses the supply.
Corporate Price Hikes Drive Inflation
In an interview with Vox, Gregory Daco, chief economist at EY-Parthenon, a global strategy consulting firm, said that there are few incentives for these companies to stop with the increase. Even if the prices aren’t justified, these corporations are being rewarded for their price hikes with higher valuations and more substantial revenues.
Daco also added that a corporate price hike is somewhat expected as supplies, transportation, and labor costs are increasing. However, consumers won’t be able to tell if these increases in costs have factored into the price hikes. This is something we’ll never figure out, added Daco.
What Will Stop These Price Increases?
These corporate price hikes aren’t moving forward as long as consumers continue to pay the higher prices, said Daco. What will stop these price increases is when people will buy less. This will also mean that the Federal Reserve will address the inflation.
Last year, the Fed has signaled stimulus measures as a recovery aid for the pandemic. It has bought government bonds and kept the interests low. This year, they are expected to raise interest rates starting in March of 2022. The UK’s Bank of England has already done this ahead of the US as Daco thinks that the Fed has anticipated the quick return to the pre-pandemic world.
Daco also added that the Fed would go ahead with the ‘soft landing’ of monetary policy to bring inflation back in line and let the labor market grow without creating a recession. Some Fed officials agree with this and know that they have to tighten the money supply across the board. They are also expected to lessen the demand that will result in a recession.
In an opinion piece for The Guardian, former US Labor Secretary Robert Reich was quoted as saying that the Fed is responsible for controlling inflation. The Fed has the power to act now to stop corporate price hikes. Because if they don’t, this will continue. And as New York University economist Thomas Philippon said to The New York Times, the firms are always greedy.
