Inflation, corporate profits, and Republicans

Companies in the S&P 500 index reported a record collective net profit margin of 12.18% in the past 12 months of financial reports; that number is far higher than any previously recorded: Annual net profit margins for the index show only three years since 1999 in which the S&P 500’s profit margin managed to hit double digits — 2006, 2018 and 2019 — and margins in those years stayed lower than 11%, with a high of 10.75% in 2018.

Bureau of Economic Analysis data shows no historical parallels to that type of profitability from corporations before 1999, either. Records dating back to the late 1940s show that after-tax corporate profits about the gross domestic product are at all-time highs.

Corporations pass these costs on to consumers in the form of higher prices. Why? Because they can and believe Americans still have a lot of cash saved from the pandemic.

Retail sales aren’t adjusted for inflation. Consumer inflation surged to a new four-decade high of 8.5% in March from a year ago. They have moved away from some pandemic-era spending habits, shifting more spending to services and away from physical goods. Higher prices have also decreased demand for discretionary purchases, such as furniture and electronics. Economists said that consumers are spending more on ne and utilities.

The preliminary April data from the University of Michigan’s consumer sentiment survey beat economists’ predictions of a flat reading and edged higher. The survey found expectations improved, both in economic and personal ok.

There are some signs that inflation may have peaked. Democrats are finally calling out record corporate profits forcing some to rethink raising prices. But there are other factors as well. According to research, consumers are switching brands as prices rise, and that’s scary as corporations have spent a LOT of money acquiring customers.

A survey from CNBC and Momentive found Americans with incomes of at least $100,000 saying they’ve cut back on spending or may soon do so, in numbers that are not far off the decisions made by lower-income groups.

The high-income consumer demographic is key to the economy. While it represents only one-third of consumers, it is responsible for up to three-quarters of the spending. As Mark Zandi, chief economist at Moody’s, notes, “If the high-income consumers are out buying, we won’t see a big impact on raw consumer activity.”

And what do Republicans want to do?

Republicans want to raise taxes on poor and working-class Americans, end Social Security and Medicare, and jack up pollution and corporate profits for their billionaire donor base.

Low-income working people in America generally pay a higher percentage of their income as taxes than most of our billionaires and multi-millionaires. They pay Social Security taxes, Medicare taxes, property taxes, sales taxes, and taxes in fees for everything from a driver’s license to road tolls to annual car inspections.

Then there are those on the right who believe higher prices are Biden’s fault. It’s an excellent way to measure the level of stupidity of some voters.

Inflation WILL level out, but higher wages will be passed onto consumers raising the prices of everything and setting them back to square one.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store