Senator Elizabeth Warren (D-MA) appeared on CNBC to support Vice President Kamala Harris' policy proposal of imposing price controls – though they and their ilk prefer expressions like "preventing price gouging." Parroting other Democratic lawmakers and left-leaning talking heads, Warren claimed corporate profit margins support the price-gouging-fueled-inflation debate. But is this the case, or is it a desperate attempt to mask the true causes of inflation?
Warren Fights CNBC on Price Gouging
Warren engaged in a heated exchange with CNBC host Joe Kernen on August 23, sparring over the Democratic nominee's pledge to prohibit price gouging if elected in November. Warren called it a public policy mechanism to ensure markets "are more competitive," adding that "We just want to put one more tool in the toolbox when CEOs are going on the phone saying, ‘Boy, inflation is great because it gives us a chance to raise our prices.'"
Kernen was not having any of it, calling the Harris proposal a "fool's errand" and a measure that diverts attention away from real issues. He noted that there is "little evidence" that supposed price gouging has fueled inflation over the last three-plus years or that it’s keeping inflation sticky and stubborn. Warren disagreed, claiming that profit margins are proof that greedflation is real. “And how do we know that it was way, way above just passing along costs? Look at what happened to their profit margins,” she said.
Debunking Price Gouging Claims
As Liberty Nation News has reported, a key gauge to show that businesses are not squeezing customers is the comparison between the consumer price index (CPI) and the producer price index (PPI). Since January 2021, the PPI, which measures prices paid for goods and services by companies, has surged 25%. In the same span, the CPI has climbed more than 20%. The CPI and PPI would switch places if the private sector actively overcharged shoppers for the past few years.
Did corporations suddenly learn how to price gouge consumers? In June 2022, the CPI reached its highest level in 40 years, topping 9%. If it had been an option in the 1990s, 2000s, or 2010s, why would corporate America only now embrace it?
“Record profits” have been the go-to talking point on the left. But that’s misleading.
First, let's distinguish between gross profit margins and net profit margins. The former represents the percentage of revenue that exceeds the cost of goods sold, or COGS. The latter takes into account all expenses to determine overall profitability. Indeed, both measurements are vital to determining whether a company is performing well. The net profit margin extends a comprehensive view of a firm's financial well-being.
Second, what are the gross and net profit margins these days? FMI, a food industry association, recently concluded that supermarket profit margins declined to 1.6% in 2023, the lowest level since 2019, when they were 1%. The same study found that just 13% of food retailers anticipate increasing net profits this year.
Last quarter, Kroger, one of the largest US supermarket chains, reported a net profit margin of about 2%. The company's gross margin was 202%, roughly the same as before the coronavirus pandemic. Albertsons' net profit margin was 1.4%, and the gross profit margin was 25.8%, down from the 28.2% it had reached before the public health crisis. Tyson Foods' gross and net profit margins were 6.6% and negative 0.01%, respectively, as of June 30.
Ultimately, it is no secret that the grocery sector experiences slim profit margins, ranging from 1% to 3%. By comparison, companies like Amazon and Apple typically record double-digit profit margins.
The Truth Will Out
Arguing that shrinkflation, price gouging, and corporate profits are driving price inflation might seem truthful on the surface. However, like many other ideas emanating from the lips of Washington policymakers, a deeper dive exposes the truth. Food prices have indeed spiked in recent years, but it is not because a grocery store CEO decided to be greedy out of nowhere. Like everything else in the broader economy, high food prices have been caused by the erosion of Americans’ purchasing power, the US government’s reckless spending, and the Federal Reserve’s monetization of the debt and deficits through the power of the printing press. But acknowledging these economics would ruin the political aspirations of a progressive in Massachusetts.
