From Guaardian
Corporate giants are raising prices even as they rake in record profits. How can this be? Because of their unchecked power.
On Wednesday, the US labor department announced that the consumer price index -- a basket of products ranging from gasoline and health care to groceries and rents -- rose 6.2% from a year ago. That's the nation's highest annual inflation rate since November 19.
Republicans are hammering Biden and Democratic lawmakers over inflation -- and attacking his economic stimulus plans as wrongheaded. "This will be a winter of high gas prices, shortages and inflation because far left lunatics control our government," Marco Rubio, the Republican senator from Florida posted on Twitter Thursday.
A major reason for price rises is supply bottlenecks, as Jerome Powell, chair of the Federal Reserve, has pointed out. He believes they're temporary, and he's probably right..
But there's a deeper structural reason for inflation, one that appears to be growing worse: the economic concentration of the American economy in the hands of a relative few corporate giants with the power to raise prices.
If markets were competitive, companies would keep their prices down in order to prevent competitors from grabbing away customers.
But they're raising prices even as they rake in record profits. How can this be? They have so much market power they can raise prices with impunity.
Viewed this way, the underlying problem isn't inflation per se. It's lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits.
In April, Procter & Gamble announced it would start charging more for consumer staples ranging from diapers to toilet paper, citing "rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods."
But P&G is making huge profits. In the quarter ending 30 September, after some of its price increases went into effect, it reported a whopping 24.7% profit margin. It even spent $3bn during the quarter buying its own stock.
It could raise prices and rake in more money because P&G faces almost no competition. The lion's share of the market for diapers, to take one example, is controlled by just two companies -- P&G and Kimberly-Clark -- which roughly coordinate their prices and production
It was hardly a coincidence that Kimberly-Clark announced price increases similar to P&Gs at the same time P&G announced its own price increases.
Or consider another consumer product duopoly -- PepsiCo (the parent company of Frito-Lay, Gatorade, Quaker, Tropicana, and other brands), and Coca-Cola. In April, PepsiCo announced it was increasing prices, blaming "higher costs for some ingredients, freight and labor."
Rubbish. The company didn't have to raise prices. It recorded $3bn in operating profits through September.
If PepsiCo faced tough competition, it could never have gotten away with this. But it doesn't. To the contrary, it appears to have colluded with Coca-Cola -- which, oddly, announced price increases at about the same time as PepsiCo, and has increased its profit margins to 28.9%.
You can see a similar pattern in energy prices.
If energy markets were competitive, producers would have quickly ramped up production to create more supply, once it became clear that demand was growing. But they didn't.
Why not? Industry experts say oil and gas companies saw bigger money in letting prices run higher before producing more supply. They can get away with this because big oil and gas producers don't operate in a competitive market. They can manipulate supply by coordinating among themselves.
In sum, inflation isn't driving most of these price increases. Corporate power is driving them.
Since the 1980s, when the US government all but abandoned antitrust enforcement, two-thirds of all American industries have become more concentrated.
Monsanto now sets the prices for most of the nation's seed corn.
The government green-lighted Wall Street's consolidation into five giant banks, of which JP Morgan is the largest.
Airlines have merged from 12 in 1980 to four today, which now control 80% of domestic seating capacity.
Boeing and McDonnell Douglas have merged, leaving the US with just one large producer of civilian aircraft: Boeing.
Three giant cable companies dominate broadband: Comcast, AT&T and Verizon.
A handful of drug companies control the pharmaceutical industry: Pfizer, Eli Lilly, Johnson & Johnson, Bristol-Myers Squibb and Merck.
All this spells corporate power to raise prices.
So what's the appropriate response to the latest round of inflation?
The Federal Reserve has signaled it won't raise interest rates for the time being, believing that the inflation is being driven by temporary supply bottlenecks.
Meanwhile, Biden administration officials have been consulting with the oil industry in an effort to stem rising gas prices, trying to make it simpler to issue commercial driver's licenses (to help reduce the shortage of truck drivers), and seeking to unclog overcrowded container ports.
But none of this responds to the deeper structural issue -- of which price inflation is a symptom: the increasing consolidation of the economy in a relative handful of big corporations with enough power to raise prices and increase profits.
This structural problem is amenable to only one thing: the aggressive use of antitrust law.
Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.
