Context on inflation and corporate profits ahead of Consumer Price Index release

AUGUSTA, Maine (July 12, 2022) — Ahead of Wednesday’s release of the U.S. Bureau of Labor Statistics June 2022 Consumer Price Index data, inflation is expected to remain high. Meanwhile, many of the largest publicly traded US corporations are expected to again report near-record profits for the second quarter of 2022.

According to research by FactSet, the S&P 500’s projected net profit margin for the second quarter is 12.4 percent, a tie for the fourth-highest net profit margin reported by the index since 2008.

Exxon Mobil has forecast that its second quarter earnings could reach $18 billion — its most profitable in 25 years — and earlier this year the company announced it would triple its stock buybacks to $30 billion through 2023. Shell recently announced that higher fuel-refining margins could add more than $1 billion to second-quarter earnings following a record $9.1 billion profit in the first quarter. Meanwhile, General Mills announced that its $1 billion operating profit for the quarter ending May 29 was up 85 percent following a year in which the company raised prices five times.

As Mainers cope with the rising costs of gas, food, and other necessities, it is important to note the role corporate power plays in the current inflationary context. Last month MECEP released Feeling the Pinch: Inflation and corporate consolidation, a report on the role of corporate power in high prices, and what policymakers can do to tame corporate excess while protecting Maine consumers.

Findings and recommendations from the report include:

  • Price increases are greatest where corporations have the most power. Over the past three decades, there has been a consistent consolidation of market power, with a small number of corporations controlling most of the market for a particular product. Excessive consolidation reduces competition and makes it easier for companies to charge excessive prices.
  • Corporations are reporting record profits — and still raising prices. In 2021, corporate profits were the highest they’ve been since the late 1940s. Examining sectors where prices most significantly impact household costs shows how firms in consolidated industries have operated during this period of heightened inflation. For example, consolidated firms in the food processing and energy sectors have dramatically raised their prices while reaping historic profit margins.
  • Policymakers can reign in corporate power and reduce the pain caused by rising prices.
    • By taking a new approach to antitrust laws, federal and state regulators can play a key role in preventing excessive concentration of market power — which allows for higher prices and lack of competition.
    • Policymakers can tackle corporate “profiteering” — the leveraging of circumstances to raise excessive profits — head-on. Maine law allows the governor to prevent price gouging during a period of “abnormal market disruption” for a specified commodity.
    • With the adoption of a one-time “excess profits” or “windfall” tax, businesses would pay a special high rate of tax on any additional profits above their 2019 levels — redirecting profits to struggling Mainers.
    • Strengthening existing safety net programs including the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and Low Income Home Energy Assistance Program (LIHEAP) would help ensure the most vulnerable Mainers are protected from the impacts of rising prices.
    • Long-term investments in supports including health care, child care, and housing are needed to curb future price increases.

Click here to read Feeling the Pinch: Inflation and corporate consolidation.


Dan D’Ippolito: