Today, Rep. Raja Krishnamoorthi, Chairman of the Subcommittee on Economic and Consumer Policy, held a hearing to examine the role of excess corporate price hikes in driving the inflation that U.S. consumers have been experiencing since early 2021.
“We are not here today to vilify corporations. As a former small businessman, I know that American innovation is the backbone of our economy, and many corporate leaders deserve praise for creating jobs and growth,” said Chairman Krishnamoorthi in his opening statement. “We are also not here to suggest that excessive price hikes are the sole cause of inflation. But we cannot ignore the reality that American companies today are reporting higher profit margins than ever, while increasing prices more than necessary to cover costs—all at the expense of the American consumer. And we must do everything in our power to shine a light on these practices.”
The Subcommittee heard testimony from Robert B. Reich, Carmel P. Friesen Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley, and former U.S. Secretary of Labor; Mike Konczal, Director of Macroeconomic Analysis at the Roosevelt Institute; and Rakeen Mabud, Ph.D., Chief Economist and Managing Director of Policy and Research at Groundwork Collaborative.
Members and witnesses discussed how corporations seeking excess profits—not worker wages—have been a significant driver of recent inflation.
- In response to questions from Chairman Krishnamoorthi about corporate executives’ comments on earnings calls—including one executive’s commitment to “take as much pricing as we think the consumer can absorb,” and another’s observation that “following periods of higher inflation, our industry has historically not reduced pricing to reflect lower ultimate costs”—Dr. Mabud explained: “[These comments] mean that [companies] will keep prices as high as they possibly can to rake in record profits as long as they don’t start losing consumers.”
- In response to a question from Rep. Porter about whether labor costs, supply chain issues, or corporate profits have been the biggest driver of inflation during the pandemic, Mr. Konczal confirmed the answer is “corporate profits.”
- In his opening statement, Secretary Reich explained: “Rather than causing inflation, wages are reducing inflationary pressures. The underlying economic problem, in addition to global problems, is not wage-price inflation—it’s profit-price inflation.” Secretary Reich added that, due to large price increases, “corporate profits are at levels not seen in over a half-century.”
- In response to a question from Rep. Bush about the relationship between worker productivity and worker wages over the last decade, Secretary Reich explained, “Worker productivity has continued to rise, but wages have continued to stay relatively flat, adjusted for inflation.”
Witnesses explained that certain corporations in concentrated industries have used their market power to raise prices, rake in record profits, and increase profit margins.
- In response to a question from Chairman Krishnamoorthi about why profits account for a significantly greater percentage of the growth of unit prices during the last three years than at any time in the prior forty years, Dr. Mabud explained: “Companies—because of endemic concentration in our economy—have long had the means to push up prices or go for market share. They’ve also long had a profit motive. But what has changed in this current period is opportunity: the cover of inflation. When prices go up generally, companies are able to raise prices without the consumers understanding how much of that price increase is coming from factors that are in the economy and how much of that price increase is coming from [some corporations] just gilding the lily.
- In response to a question from Rep. Brown about the effect of corporate concentration in the meatpacking industry on consumer prices, Dr. Mabud explained: “Four companies in the meatpacking industry … control 85% of the industry.” That concentration “means that they have an enormous amount of pricing power because of the market share that they hold and consumers are paying really high prices at the checkout counter as a result.”
- In response to a question from Rep. Porter about why companies with the highest profits and price increases before the pandemic also had the highest profits and price increases during the pandemic, Mr. Konczal explained: “We believe those high markups from before the pandemic reflected a severe market power problem that we had even before COVID. And those companies were able to increase their prices at an even higher pace as a result of the reopening.”
- In response to a question from Rep. Brown about the impact of inflation on marginalized communities, Dr. Mabud explained: “Low-income families, especially families of color, are disproportionately impacted by higher prices—especially when those higher prices are being driven by essentials such as food and shelter. Low-income families spend about 75% of their income on necessities such as food, gas, and shelter—more than double the 31% for high-income households.”
- In response to a question from Rep. Bush about the lopsided impact of inflation, Secretary Reich explained that the current inflationary environment is “making it harder for workers—particularly Black workers—who are disproportionately low-wage to get income increases.”
