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Even though inflation of consumer prices in the U.S. has stabilized, a year-over-year increase of 4 percent persisted as of May, continuing to put pressure on households. This is despite the fact that the Producer Price Index has been falling almost continuously since July of last year, raising the question if persistent price increases are not driven by increased costs for producers, but by a different measure – their greed.
A comparison of CPI and PPI data shows that producers don’t normally pass changes in their costs on to consumers immediately, may that be in their favor or not. During the Covid pandemic, producer prices rose more quickly than consumer prices. However, an ongoing decoupling of the indices like the one happening now is unusual and suggests that the point in time when producers have recouped their pandemic losses might have already passed.
A recent report by nonprofit Accountable.Us has 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 detail that the companies in question have used their increased income for shareholder payouts and dividends as well as stock buybacks and even acquisitions.
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.
This chart shows the U.S. Producer and Consumer Price Index (Jan 1982=100).
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