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The window closes to the “greed” of companies. This is another sign that inflation is falling.

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  • Many companies have posted record profits in the past year.
  • This has led some economists and politicians to accuse the companies of fueling inflation.
  • However, these gains may not last long as many CEOs see signs of customers tightening their belts.

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While technology companies like Twitter and Meta are struggling, a number of US companies in other industries have posted record profits over the past year.

This led economists and politicians to accuse companies of raising prices – fueling the inflation that continued to hit the US wallet.

“Profit margins in the US have increased since the recession. This is normal,” said a note from Albert Edwards, global strategist at Societe Generale. “What’s not typical is that margins didn’t suffer from their usual cyclical decline during the 2020 recession,” Edwards said.

“Gridflation” – the idea that companies use inflation as an excuse to raise prices and increase profits – may be part of the explanation.

“Companies have passed on higher costs to customers. But they also took advantage of the situation to increase profit margins,” said Paul Donovan, chief economist at UBS.

The following chart shows after-tax corporate profit as a share of US GDP. Profits have not only increased over the past few decades, but also since the start of the pandemic.

However, raising prices may not be enough to save companies from the economic reckoning that lies ahead next year.

“The tightness will take its toll and the time for consumers to cut costs is over,” Craig Erlam, senior market analyst at OANDA, previously told Insider.

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Although inflation has slowed recently, it remains high. The Federal Reserve appears poised to continue raising interest rates to ease rates, albeit perhaps at a slower pace than the current cycle of rate hikes that began in the spring. With higher interest rates flowing through the economy — and a possible recession next year — most global CEOs expect their companies to take a hit.

CEO confidence fell to its lowest level since the Great Depression in the fourth quarter, according to a study by The Conference Board. According to a press release, only 5% of CEOs surveyed said they “expect economic conditions to improve over the next six months.”

It is uncertain to what extent rising corporate profits are responsible for the high inflation rate, but as inflation slows, the negative CEO sentiment suggests that some companies’ profits are falling as well.

Some politicians and economists say that record profits are driving inflation

Democratic lawmakers began blaming corporations a few months ago, but the call hasn’t died down.

In early November, Sen. Bernie Sanders wrote, “The economic crisis is not inflation, it’s corporate greed,” while President Joe Biden threatened windfall taxes on energy companies whose profits were “so high it’s hard to believe.” It’s hard to do.” Following the Democrats’ strong run in the midterm elections, Senator Elizabeth Warren said it was a sign that voters agree that companies are “inflating inflation.”

“Candidates up and down the ticket called price gouging — from Big Oil to supermarket chains — and they won,” she said.

A report from the House of Representatives’ subcommittee on economic and consumer policy in November pointed to “massive increases in profits between 2019 and 2021” and said that “some companies began to record record profits and profit margins — and continue to do so.” keep doing.”

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While some economists have dismissed the idea that corporate prices are fueling inflation, others have suggested it could play a role.

Even the Federal Reserve may be starting to take notice.

In September, Lael Brainard, Vice Chairman of the Federal Reserve, said retail profit margins “have risen significantly above the average hourly wage that retailers pay to employees.”

A note from Edwards to Societe Generale stated that while Brainard was “never one to use the words price gouging or inducement”, he suspected she was alluding to it.

“My translation is: ‘we increasingly see economy-wide and especially inflated retail margins as a source of inflation and we are going to quell that trend by killing demand.’ No wonder US CEOs’ confidence has plummeted despite record margins.”

Director The clients of the project will start recording their expenses and this will reduce the profit

The House of Representatives subcommittee report found that several CEOs bragged during earnings calls over the past year about their ability to “raise prices more than necessary to cover costs.” But his tune begins to change.

While many companies reported strong earnings in recent weeks, business leaders made their views clear on the future of the economy. Consistent theme: There are already signs that consumer spending is slowing, and this could slow even further as inflation continues to take its toll.

At Target, where third-quarter earnings fell short of expectations, customer behavior was “increasingly impacted by inflation, rising interest rates and economic uncertainty,” said CEO Brian Cornell.

Walmart CEO Doug McMillan echoed a similar theme, saying that inflation “has a cumulative effect on our customers, especially those who are price conscious, which is why we try to lower our costs and prices as quickly as possible.” Focused on bringing it down. Category.”

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Cole, General Mills, 3M and Coca-Cola supplemented the chorus, noting a “challenging and highly volatile” business environment, “weak” spending and “changing consumer behavior.”

Just as rising prices accompanied by rising profits can hurt consumers, falling profits — if they fall enough — can potentially lead to layoffs. For now, jobless claims are near historic lows, despite high-profile layoffs at companies like Meta and Twitter. However, projections from the Federal Reserve suggest that this will not last forever.

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