Corporate profits

Rising prices boost corporate profits

Workers seeking pay rises are often blamed for inflation, but right now people are questioning the role of corporate profits in driving up prices.

Some large multinational corporations have been very open with their investors that price increases translate into increased revenue. In 2021, the multinational Proctor & Gamble said they needed to raise prices to compensate for increased costs and uncertainty. But in January 2022, they reported to shareholders that their revenue in the last three months of 2021 had actually increased by 6% over the previous year. This news sent their stock price soaring, leading to even more profits for senior executives and shareholders.

How can companies get away with price increases higher than necessary during a global pandemic? And why do they feel comfortable drawing attention to their soaring profits?

Over the past 20 years, there has been tremendous consolidation in many sectors of the economy, globally and in Canada. Fewer and fewer companies increasingly control the market. For example, most baby diapers sold in North America are made by just two companies – Proctor & Gamble and Kimberly Clark.

According to economic theory, the threat of competition from other firms is what keeps prices low. This means that when two or three big companies corner the market, we often see prices rising faster than costs. The Canadian economy is particularly vulnerable to this trend because, when evaluating potential mergers, our competition laws prioritize potential efficiencies with large firms.

When people have few alternatives for goods, companies don’t mind looking too greedy as they celebrate rising prices and profits. There is also evidence that openly discussing rising prices and profits can lead to increased executive compensation.

A recent report from the Canadian Center for Policy Alternatives showed that bonuses like stock options continue to boost executive compensation, accounting for 82% of the total compensation of Canada’s top 100. CEOs in 2020. Thus, the total earnings of the executives are highly dependent on the share price. And it’s clear that companies that draw attention to higher prices and higher profits, like Proctor & Gamble did last year, were rewarded with higher stock prices.

Pandemic profiteering is not the only driver of current inflation, but it appears to be a factor in Canada as well as in the WE. To research Canadians for Tax Fairness revealed that 50 of Canada’s largest companies made record profits in 2020. Big winners from the pandemic in Canada included finance and insurance companies, Dollarama, convenience store chain Couche- Tard and five real estate investment trusts (REITss), among others.

So when someone tries to blame workers for the rising cost of living, just point out how corporate profits, shareholder dividends and executive compensation have continued to rise throughout the pandemic. Pandemic profits are further proof that wealth does not trickle down. We must fight for fair wages and fair corporate taxation.