Even though inflation of consumer prices in the U.S. has stabilized, a year-over-year increase of 4% persisted as of May, continuing to put pressure on households. This is despite the fact that prices—at least when looking at one measure—should not be rising this fast, or at all, anymore.
The measure in question is the Consumer Price Index’s cousin, the Producer Price Index, both published by the Bureau of Labor Statistics. The PPI has been falling almost continuously since July of last year, while the CPI has continued to rise, raising the question if persistent price increases are not driven by increased costs for producers, but by a different measure – their greed. A new report has now found that many consumer product companies have indeed increased their bottom line recently instead of just recouping increased costs themselves.
The last couple of years of CPI and PPI data show that producers don’t normally pass changes in their costs on to consumers immediately, may that be in their favor or not. During the onset of the Covid-19 pandemic, producers’ expenses decreased—for example due to the low cost of energy—but an ensuing dip in consumer prices is hardly visible. However, when producer prices rose quickly as a result of supply chain turmoil in 2021 and Russia’s invasion of Ukraine in 2022, the increase in consumer prices, albeit steep, was still not as dizzying as the one producers experienced.
Despite the fact that both indices don’t always move in unison, a decoupling like the one that happened during the past year is still unusual and begs the question of when consumer prices will return to levels deemed acceptable by the Federal Reserve—around 2% per year—and if the point in time when producers have recouped their increased costs has not already passed.
Shareholder payouts, stock buybacks and acquisitions
U.S. nonprofit Accountable.Us last week released a report that gives some answers to this question. The organization analyzed public company profits and statements by executives and found that “many of the largest general consumer S&P 500 companies have admitted to benefiting from increased prices as their net profits increased year-over-year.” The release as well as an analysis by The New York Times
At the same time, interest rates in the U.S. have soared due to the same inflation that just wouldn’t budge. These rates have been putting a strain on the economy beyond the big consumer brands and have led to bankruptcies, layoffs and fears of recession. After its latest meeting on June 14, the Federal Open Market Committee decided to pause its aggressive rate hikes for the first time in 15 months, but signaled that more increases might still be necessary in the future.
Charted by Statista