US companies have increased prices more than costs have increased in 2021. That’s what the Kansas City Fed has calculated. “More than half of the inflation that year also came from that,” says economist Edin Mujagic.
The fact that inflation was extremely high in 2021 and 2022 shouldn’t be called a secret, according to Mujagic. Even in the US. And that was of course the oil price, the gas price, the logistics bottlenecks, the central bank policy, but also the price hikes by the companies,” he says. And this may seem logical. If prices rise, there will always be inflation. But at the Kansas City Fed they looked at how much American companies raised prices.
In other words, did American companies take advantage of the situation where everyone and everything found it acceptable for prices to rise? “According to the Kansas City Fed, many American companies raised prices more than prices did at the time,” Mujagic says.
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According to the regional central bank, the companies have done so with the expectation that costs will increase structurally in the coming years. And that explains why earnings have held up so well over the past two years, Mujagic thinks. “Despite high inflation, despite low economic growth, they have continued to make profits.”
It therefore asks under what circumstances companies raise their prices too much. “I think the magic word is ‘competition,'” she continues. ‘If you have little competition, you can easily raise your prices. And if we look at the US economy through that lens, there’s a lot to indicate that three-quarters of sectors of the US economy have two or three companies that control the lion’s share of the market. And then you understand that even in the United States, it’s pretty easy to raise prices a little beyond the cost increase. They just have that power.’
Source: BNR
Sharon Rock is an author and journalist who writes for 24 News Globe. She has a passion for learning about different cultures and understanding the complexities of the world. With a talent for explaining complex global issues in an accessible and engaging way, Sharon has become a respected voice in the field of world news journalism.
