The window is closing on corporate ‘greedflation.’ It’s another sign that inflation is cooling off.

Many companies have reported record profits over the past year.
It’s led some economists and politicians to accuse companies of fueling inflation.
These profits might not last, however, as many CEOs see signs of customers tightening their belts.

While tech companies like Twitter and Meta are struggling, many US corporations in other industries have reported record profits over the past year.

It’s led economists and politicians to accuse companies of jacking up prices — and fueling the inflation that continues to hit Americans’ pocketbooks.

“US profit margins surged after the recession. That is normal,” stated a note from Albert Edwards, global strategist for Societe Generale. “What has not been normal,” Edwards added, “is that margins did not suffer their usual cyclical decline in the 2020 recession.”

“Greedflation” — the idea that companies are using inflation as an excuse to raise prices and boost profits — could be part of the explanation.  

“Companies have passed higher costs on to customers. But they have also taken advantage of circumstances to expand profit margins,” said UBS Chief Economist Paul Donovan. 

The following chart shows corporate profits after tax as a share of US GDP. Profits have not only risen over the past decades, but have remained elevated since the pandemic began. 

 

Raising prices, however, might not be enough to save businesses from the economic reckoning that could be on the horizon next year.

“The squeeze is going to take its toll and the window of easily passing on cost increases to end consumers is passing,” Craig Erlam, senior market analyst at OANDA, previously told Insider.

While inflation has recently slowed, it remains elevated. The Federal Reserve looks poised to continue raising interest rates to tamp it down, albeit perhaps at a slower pace than the current cycle of rate …read more

Source:: Businessinsider

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