Feb 24, 2022 - Economy & Business

Wanted: Inflation scapegoat

Illustration of fingers pointing towards a $100 bill
Illustration: Eniola Odetunde/Axios

Prices are going up and everyone wants someone to blame. For conservatives and Republicans that's easy: They can blame the president and his stimulus spending. On the other side, some progressive groups and Democratic lawmakers are arguing that corporate greed is making inflation worse — and pushing the White House to talk about this more.

Why it matters: It's natural to want a clear story to tell about inflation, with an obvious villain. But prices are rising for all kinds of reasons — yes, fiscal stimulus but also busted supply chains, increased demand, changing consumer preferences. It's not a simple story.

What they’re saying: "President Biden has been dealt a tough hand on inflation but going after corporate profiteering is a strong card to play," says Dan Crawford, press secretary at The Hub Project, one of the progressive groups urging the administration to message this harder. He points to partisan polling that suggests Americans do blame big companies for higher prices.

Yes, but: The White House has talked up this issue, mostly in very specific instances — like meat processing — and got pushback from other left-leaning types. The narrative is "nonsense," writes Washington Post columnist Catherine Rampell.

State of play: Progressive groups aren't saying companies shouldn't raise prices to keep up with inflation. The argument is that companies are using inflation as an excuse to jack up their profit margins — passing on the rising cost of doing business and then some.

  • Progressives, lawmakers and the White House point to decades of corporate consolidation as a longstanding driver of inflation — some industries are dominated by just a few players.

Details: Earlier this month, meat packer Tyson Foods announced its first quarter profits doubled. Its profit margins on beef at 19.1% were up six points from the previous year, and overall profit margins widened to 11.1% from 9.5%. Tyson is one of four meat processors that dominate that market.

  • Amazon announced a 17% increase in the price of its annual Prime subscription service. "Nobody seems to be blinking at that," said Lisa Shalett, CIO at Morgan Stanley Wealth Management. "I almost fainted."

On earnings calls and in interviews, chief executives talk about passing on costs to consumers who have so far proved willing to pay.

  • "We’re pretty fortunate with the pricing power that we have ... we know if we need to take more pricing, we have room to do it. To date, we have seen no resistance from our customers," said Chipotle CEO Brian Niccol on CNBC earlier this month.
  • Hotel owners Hilton and Marriott are trying to figure out how to take advantage of the inflationary moment to achieve higher profit margins, possibly by dialing back services like daily room cleanings, as Neil Irwin wrote in last week's edition of Axios Capital.

Some Democratic Senators are blasting this message.

  • Sen. Raphael Warnock (D-Ga.) is one of several Democrats who told Axios' Sophia Cai they're concerned about corporations pushing brazen price spikes under cover of inflation.

In July, Biden signed an order "promoting competition," and messaged it as a way to fight inflation. But the White House tailored its messaging to specific industries, for instance going particularly hard at the meat packers.

  • Yes, but: The administration's message — that lack of competition helps drive inflation — isn't quite getting through to voters. Possibly because not everyone inside the administration is aligned on it, according to a report from the Washington Post's Jeff Stein last week.
  • Economists both inside and outside the administration have said that the idea that outsized corporate greed is responsible for inflation is misguided, and that profits are up because demand is up and that enables companies to raise prices, according to the Post.

What to watch: How Biden frames inflation in his State of the Union speech next week. And, how the crisis in Ukraine changes the messaging on rising prices in the energy sector.

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