Originally Published: 11 MAR 24 07:00 ET
By Tami Luhby, CNN
(CNN) — Hearing that big corporations are raking in hefty profits frustrates Nick Rosolino. As the owners of a small cleaning business in rural Maine, Rosolino and his wife are finding it increasingly difficult to break even after the prices for the products they use soared in recent years.
While supply chain problems and high demand may have helped spur inflation early in the pandemic, Rosolino believes there’s another key reason why prices have soared and remained high: Corporate greed.
“Many CEOs are stating that profits are up as a result of rising prices,” said Rosolino, 51, who lives in New Gloucester, Maine, about a half hour from Portland. “It’s definitely a driving force, greed. It’s corporate greed.”
Reluctantly, he had to raise his prices by 15% earlier this year for the first time since the pandemic began, a move his customers said they understood. The increase will help him better afford the environmentally friendly products he uses, such as the 28-ounce bottle of all-purpose cleaner that now costs as much as $4.29, up from $2.49 not too long ago.
Asked how they are feeling about the economy, Rosolino was among a number of CNN readers who blame companies’ drive for higher profits as a main factor for the dour mood. That has kept prices elevated and left them, and the nation, struggling, they say.
President Joe Biden has also seized on the idea of corporate greed as he struggles to get his economic message to resonate with voters and to deflect blame. It was a central talking point in his State of the Union address on Thursday.
“Too many corporations raise prices to pad their profits, charging more and more for less and less,” Biden said. “In fact, the snack companies think you won’t notice if they change the size of the bag and put a hell of a lot fewer … same size bag for fewer chips in it.”
Biden’s sentiments were echoed last week by Cookie Monster, who complained on X about “shrinkflation,” lamenting that his cookies are getting smaller.
Companies are doing well
Corporate America has enjoyed healthy profit margins in recent years, even as many people have had to make sacrifices to cope with the surge in prices. Inflation hit 40-year highs in 2022, and though it has cooled since, consumers have not gotten a break.
Corporate profits as a share of the national economy remain near post-World War II highs, Lael Brainard, director of the White House’s National Economic Council, said in a January 2023 speech when she was vice chair of the Federal Reserve.
Profit margins at nonfinancial firms should remain elevated this year, as they benefit from lower costs, according to Goldman Sachs analysts. Companies are typically slower to reduce their prices when costs decline than they are to raise prices when their expenses jump.
Profit margins were higher in 2023 than they were just before the pandemic began, the analysts said.
Corporate profits have contributed to inflation, though experts differ on the extent.
A recent report from Groundwork Collaborative, a progressive advocacy group, argues that corporate profits drove 53% of inflation during the second and third quarters of 2023 and 34% since the start of the pandemic.
The Federal Reserve Bank of Kansas City found in a 2023 report that corporate profits contributed 41% of inflation in the first two years of the economic recovery following the recession sparked by the pandemic. It noted that’s actually less than the historical average in prior recoveries.
The increase in corporate profits tracks with what’s expected to happen when prices rise due to supply and demand imbalances, said Neil Bradley, chief policy officer at the US Chamber of Commerce.
“This is still a really strong economy from a consumer purchasing standpoint,” he said, noting that demand remains higher than prior to the pandemic, when profit margins were lower.
To control their own costs, companies at times prefer to reduce the size of their products rather than raise their prices – otherwise known as shrinkflation. That’s because research shows that consumers are more sensitive to price changes than size changes, the Bureau of Labor Statistics said in an article last year.
Household paper products and snacks are the most common items that manufacturers downsize, according to a bureau analysis that looked at changes between 2015 and 2021. The changes affect consumers’ cost of those goods, particularly at the grocery store, though they have a very small impact on overall inflation.
However, the bureau said the number of shrinkflation reports is falling.
Tough on families
High prices, particularly at the supermarket, have left Heather Vargas and her family struggling to make ends meet. The Citrus Heights, California, resident’s most recent grocery tab came to $165 – and she’s buying ground beef, not steak, she pointed out. Last year, she was paying less than $100 on a typical trip to the store.
“Corporations are greedy!” Vargas, 45, wrote to CNN. “Every time I go to the store, prices are raised a quarter to a dollar. That all adds up.”
Vargas, who cares for a special needs child but also works as a delivery driver when she can find gigs, and her husband – a truck driver – have cut back on spending and carefully plan each meal to stay on budget. She did not appreciate WK Kellogg CEO Gary Pilnick’s recent suggestion that families looking for more affordable options can eat cereal for dinner. It was like “a slap in the face” from a CEO who is paid millions of dollars a year, she told CNN.
Companies haven’t seen the need to change their ways because Americans are continuing to spend even as prices have climbed, said Aaron Hackman, 38, who lives in Fort Lauderdale, Florida, with his husband, McKinley Conner.
“Corporations just got used to ‘If I can charge the consumer X, Y and Z during the pandemic, and I can still continue charging them that now and they’re going to pay it because we know this is important to them, we’re going to do so’,” said Hackman, an administrator at a college.
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Prices are still high
**This image is for use with this specific article only** A customer shops at a Miami grocery store in 2022.
Joe Raedle/Getty Images via CNN Newsource
11 Mar 24
