As complex factors ranging from inflation to the Russian invasion of Ukraine drove up the cost of raw materials, companies in the food, energy, healthcare and real estate sectors increased their prices far beyond covering their own increased costs, according to a new report analyzing business earnings from Accountable.US.
Rising prices for consumer staples have far outpaced rising production costs as US corporate profit margins have reached their highest rates since 1950. The report found that leading food, energy, healthcare and property management companies continue to raise prices for consumers, even as their profits jumped $6 billion between 2021 and 2022.
Rising food prices are a far cry from rising corporate profits
The Consumer Price Index 2022 showed that the cost of meals at home was more than 13% higher in July 2022 than in July 2021, but rising food costs were only outpaced by rising corporate profits. Kraft Heinz raised prices twice in 2022, with profits rising 93% in the first half of fiscal 2022. Food processing giant Archer Daniels Midland (AMD) saw a 63% increase in profits over the same period, largely due to rising prices. war-related grain shortages in Ukraine. General Mills, one of the world’s largest consumer packaged food companies, has raised prices five times over the past year, while its net profit has increased 46%.
Rising food prices hit low-income households the hardest. Low-income households spend twice as much of their income on food as middle-income households, so soaring food prices use up more of the already constrained discretionary spending of low-income households.
Soaring fuel and electricity prices hit consumers hard
Energy prices increased by almost 33% from July 2021 to July 2022, and August electricity bills in the U.S. were almost 16% higher in 2022 than in August 2021. The war in Ukraine sent energy prices skyrocketing, and a record-breaking hot summer prompted many U.S. consumers to use more energy to power their air conditioning systems.
Electricity and electricity bills have been made more expensive by sharp increases in consumer tariffs. Southern Company, a large Georgia-based utility, raised customer rates by 12% even as its profits increased by 41.8%. The nation’s largest utility, Florida Power & Light, has raised rates by up to 20% in 2021; the company is currently defend his decision before the Florida Supreme Court. Nexterra Energy, the parent company of Florida Power & Light, reported a profit of $420 million and spent $1.6 billion on shareholder dividends in the first half of fiscal 2022.
Again, low- and middle-income families are caught in this growing spiral of corporate profits. In July 2022, one in six American families were behind on their utility bills and at risk of having their utilities shut down, as the National Association of Energy Assistance Directors completed this summer.
Drug costs are also rising
While the Inflation Reduction Act includes several initiatives aimed at reducing prescription drug prices for Medicare beneficiaries, the program is the subject of a plan to be implemented gradually over time. The Accountable.US report noted that “the largest US drugmakers saw profits jump by more than $6 billion to $36 billion while increasing shareholder grants by more than $5.2 billion. dollars to $24.5 billion in the first half of 2022”.
For example, in a August conference call, Michelle Peluso, Chief Customer Officer of CVS Health, said, “For the most part, we are able to pass inflation on to our customers.” However, earnings reports show that CVS Health is passing on more than inflationary costs to customers: CVS earnings grew an additional $259 million from 2021 to 2022, bringing its total earnings to $5.27 billion.
Rent keeps rising at a fast place
In August, U.S. rent prices hit record highs for 17 straight months, while the nation’s largest apartment companies saw profit margins rise by nearly $296 billion. Shareholder dividends for the three largest apartment companies, Mid-America Apartments, Starwood Propertiest and AvalonBay Communities, rose from $33.9 million to nearly $1 billion in fiscal 2022. Rent national median reached $1,879 per month in July 2022, or 12.3%. jump from the previous year.
When does a price increase lead to profits for companies?
As concerns continue to grow that the United States is heading into recession, the biggest food, energy, health care and real estate companies continue to raise prices at the beyond the point of covering inflationary costs. For these large consumer-facing companies, shareholder dividends have increased by $15.4 billion to a total of $62.6 billion from 2021 to 2022, even as the Fed is anticipating a rise in unemployment. Bottom line, while U.S. households will likely continue to struggle with the rising cost of living for the foreseeable future, record corporate profits are translating into more payouts to shareholders and executive payouts. critics call it excessive.
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