In spite of higher wages and costs driving up inflation gauges, some American companies are reporting their best profits in years, according to an article in The Wall Street Journal. These companies are seizing the opportunity to raise prices to match the rising costs—and consumers, ripe with savings and federal stimulus checks, are paying them.
The profits tend to be clustered in the retail, manufacturing and biotech industries, while plenty of other industries, like travel, have raised prices but are not seeing the profits. Nearly 2 out of 3 of the U.S.’s largest publicly traded companies are reporting bigger profit margins this year than over the same stretch of pre-pandemic 2019, with almost 100 of the companies showing profits that are 50% or more above those 2019 numbers, the article maintains.
Though profit margins often rise with inflation, the current environment is unprecedented, according to some executives, and there is always a risk that companies will overreach, driving away customers. And the risk to consumers is that the higher prices will stick, customers will become convinced that more increases are coming, and drive inflationary demand. The possibility of that vicious cycle is a main concern behind the question of how long this inflation is likely to last.
With inflation at a 31-year-high last month, Americans are paying more for products than ever before, and while some argue that it’s temporary and tied to the continued effects of the pandemic, others say that higher inflation is likely to continue for the next few years. But it’s not just those higher prices that are driving up profitability—there’s also great demand for an array of goods from electronics to cars to luxury items. That strong demand enables companies to raise prices—and have consumers pay them. However, the article concludes, once supply chain issues are resolved and consumer spending shifts, demand is likely to slow, and companies will lose the ability to raise prices further, leaving us with cooled demand and hot supply. The bottom line? Don’t assume the current environment is the new normal.