Companies are using inflation to price-gouge Americans – and making it worse

We learned this week that the Consumer Price Index climbed 3.5% in March from a year earlier, up from 3.2% in February, and faster than most economists anticipated.

This poses a conundrum for central bankers who have made it clear they want to see further evidence that inflation is cooling before they cut interest rates.

The Fed’s high interest rates haven’t pushed America to the brink of a recession, fortunately, but they haven’t slowed inflation as much as policymakers had hoped.

The question is whether Fed officials can cut interest rates at all this year.

Joe Biden acknowledged that “prices are still too high for housing and groceries”, and said he was “calling on corporations, including grocery retailers, to use record profits to reduce prices”.

What’s the president getting at?

Corporate profits reached a record high in the fourth quarter of last year.

The easiest explanation for record corporate profits at the same time prices remain elevated is that corporations have enough monopoly power to keep prices high.

(Note that many corporations are also shrinking the size of the products you’re buying without lowering their prices – a variant of the same thing.)

This is one of the biggest reasons the American public is not yet crediting Biden with a great economy. Most people still aren’t feeling it.

In 2023, PepsiCo’s chief financial officer said that even though inflation was dropping, its prices would not be. Pepsi hiked its prices by double digits and announced plans to keep them high in 2024.

If Pepsi were challenged by tougher competition, consumers would just buy something cheaper. But PepsiCo’s only major soda competitor is Coca-Cola, which – surprise, surprise – announced similar price hikes at about the same time as Pepsi