From the Wall Street Journal this morning:
"Companies are paying higher wages, spending more for materials and absorbing record freight costs, pushing up economic inflation gauges. They are also reporting some of their best profitability in years.
"Executives are seizing a once in a generation opportunity to raise prices to match and in some cases outpace their own higher expenses, after decades of grinding down costs and prices."
Not everybody, of course: Some industries, "largely those still climbing out of pandemic lockdowns, such as travel, or those too weighted with inflationary costs, have raised prices but not experienced a profit boost."
But, the Journal writes, "Nearly two out of three of the biggest U.S. publicly traded companies have reported fatter profit margins so far this year than they did over the same stretch of 2019, before the Covid-19 outbreak, data from FactSet show. Nearly 100 of these giants have booked 2021 profit margins - the share of each dollar of sales a company can pocket - that are at least 50% above 2019 levels."
The story goes on:
"Profit margins often rise with inflation. The risk to companies is that they overreach, raising prices faster than their competitors, or farther than customers will tolerate, losing sales and market share that may take years to recover.
"The risk to the economy is that price hikes not only stick, but convince customers more increases are inevitable, spurring inflationary demand and sparking a vicious cycle. How long inflation is likely to last is a central concern for economists and politicians.
"Inflation hit a 31-year-high last month. Americans are paying more for an array of products and services, including necessities: food, gas, rent and furniture. The consumer-price index, a key economic indicator, increased in October by 6.2% from a year ago. That was the fastest 12-month pace since 1990 and the fifth straight month of inflation above 5%."
- KC's View:
Last Friday, I linked to a piece in The Guardian by Robert Reich, the former US Secretary of Labor and current professor of public policy at the University of California at Berkeley, about his prescription for dealing with inflation.
I did this because an MNB reader sent me the piece…just minutes after another reader emailed me asking if I'd seen anything interesting about inflation that I planned to share with the MNB community."
I got a lot of pushback about the link, largely because Reich took aim at corporate giants. Which is fine. I knew it would be provocative, which is why I ran it.
To be clear, I am not smart enough to know whether Reich's diagnosis has any merit. I know very little about economics, but I try to keep an open mind as I read different opinions about what to do now.
All I know (I think) is that the problems seem very complicated, in some ways systemic and related to the unusual circumstances of the past couple of years, and require nuanced, definitive and quick - but not knee-jerk - reactions.