Greedy US companies should not be responsible for inflation! Federal Reserve: Profit margins have returned to pre-epidemic levels

"Don't blame greedy corporations for the surge in US inflation over the past few years."

That's the conclusion of Federal Reserve economist Berardino Palazzo in a new study. Palazzo wrote in a September 8 note,Once the massive fiscal and monetary support provided to the economy is factored in, "corporate profit margins are not exceptionally high in the wake of the COVID-19 pandemic."

Progressives such as Massachusetts Democratic Senator Elizabeth WarrenThe rise in profit margins brought about by the epidemic was cited as evidence of what came to be known as "rapacious inflation."So-called "greedy inflation" refers to companies taking advantage of rising consumer demand to push up prices far beyond costs.

However, Palazzo believes that,"Unprecedented" government support for SMEs is the main reason for higher profit margins.They have also been helped by the Federal Reserve's easy monetary policy, which has sharply reduced net interest payments by companies, he wrote.

Last summer,A measure of U.S. profit margins reached its highest level since 1950, indicating that prices charged by companies outpaced increases in production and labor costs.

Commerce Department data released in August showed that after-tax profits as a percentage of total value added by non-financial companies rose from 14 per cent in Quarter 1 last year to 15.5 per cent in the second quarter, the highest level since 1950.

Industrial foreign exchangeThe data shows that, overall,Businesses can easily pass on rising raw material and labor costs to consumersWith household budgets squeezed by the rising cost of living, some companies have also been able to offset the slump in demand by charging customers more

The surge in profits during the epidemic has sparked a debate about whether companies driving up prices are somehow responsible for high inflation, a view that most economists are skeptical of.

And this is confirmed by the Fed study, which says, "Once we adjust our fiscal and monetary interventions, aggregate corporate profit margins seem less attractive.By the end of 2022, they are basically back to pre-epidemic levels。”