Laying It Out: Inflation got you down? Don’t worry, profits are way up

By Scott Schmidt on May 7, 2022.

With all the stories coming out in recent months showing record profits for large corporations, it’s surprising so many people are convinced inflation is entirely caused by pandemics and war.

Yes, supply chain issues have an impact, and yes, spiking commodity prices made everything more expensive. But, as per usual, the entirety of added costs for production are passed onto the consumer, and in the case of inflation we haven’t seen in decades, there’s no denying this has happened and then some.

Loblaw’s boasted a 40% spike in profits in its first-quarter financial update, and the company increased shareholder dividends for the 11th quarter in a row.

Alberta power companies nearly quintupled profit margins during a price spike in the winter, which was shown by a University of Calgary report to be due to markups well beyond increased production costs.

Auto insurance buyers in Alberta saw an average 19.2% increase to annual premiums after the UCP lifted a 5% cap in 2019, and an April report shows the result was $1.15 billion more in premiums than claims that year, and $1.32 billion in 2020 once COVID-19 set in.

For all the economic doom and gloom discussed throughout the pandemic, for all the stories about health measures causing businesses to fold, we sure are seeing a lot of money made by some along the way.

I wrote recently that Pierre Poilievre was doing and saying all the right things on the CPC leadership campaign trail, and that tapping into everyday Canadians’ financial struggles was an impressive way to win over younger voters. The expense of life is ever growing, and we all want to hear ways we can slow the climb.

But while Poilievre is bang on pointing out financial issues Canadians face, his only real mention of profit-gouging has come through complaints about Ottawa “printing money.” According to the CPC frontrunner, rising prices and profits are nothing more than a result of having too much cash in supply.

Basically, all he’s saying is if consumers have money, corporations will find a way to get it – and he’s not wrong.

“We think that’s an indication of the consumer having more money in their wallets than they would have had pre-COVID,” Loblaw president Galen Weston told a conference call regarding customers still showing up to buy groceries despite inflation topping 7.5%.

Weston is admitting when consumers have more money, they will spend it, and if they’ll spend it, why not charge more for it. And since Poilievre has zero interest in curbing profits of the richest family in the country, he’s all too happy to tell Canadians if they simply had less money, companies couldn’t take it.

I suppose, if you only have $10, it’s hard to pay $11. Makes sense, of course, but it conveniently leaves out that if you only have $9 and the company charges $9, somehow they still make a profit. And if you have $11, they’re going to charge $11, regardless of their own costs.

Is delivering goods to consumers more expensive for Loblaw’s during spiked inflation? Of course, but by definition, if they manage higher profit margins in spite of that, they’ve increased prices more than needed.

And the stories of insane profits are everywhere, from grocery chains, to Amazon, to oil companies, banks and so on. Are we seriously going to believe the only way to solve price gouging by these massive corporations is by consumers having less to spend?

First of all, notice the largest factors for inflation – groceries, energy, transportation and housing – are essential goods Canadians on the whole must pay for. If price gouging during a pandemic was only happening for luxury items, well then I suppose a good capitalist could muster a reasonable defence.

But these are essentials consumers must pay for. Gouging for profit in these areas won’t have much future effect on Loblaw’s, or your electricity provider, because those are the first things people buy. However, less disposable income due to higher costs for essentials is not just bad for people, it’s bad for non-essential businesses, too. And if you aren’t sure if you’re in that category, ask yourself one question.

Did I have to close during the pandemic?

Imagine owning a restaurant, having to raise prices to deal with your own inflationary effects, and then your clientele takes a pay cut due to profit hikes on food, energy, gasoline and so on. If Loblaw’s is gouging people just because they can, what’s left for the $20 burger and fries at the local pub?

The truth is, inflation at this pace leads to recession because purchasing power is gutted. And if price gouging on essentials continues, while a budding prime minister promises less money in supply, that recession will only be worse, and longer.

If Poilievre actually cared about the consumer, he could advocate for higher wages, or he could advocate for profit controls like caps or progressive corporate tax brackets. Instead he pushes the opposite (all good neoliberals do) knowing full well the recession will come.

In fact, the recession is preferred.

It won’t hurt profits for large corporations, as we’ve already discussed, and financial institutions will rake it in hand over fist through all kinds of lending after interest rates drop and borrowing ramps up.

Meanwhile, when inflation goes up, many consumers are choked out of the economy, and when recession sets in, many more consumers are choked out of the economy. Poilievre wants to fix the former with the latter, and he’s promising to do it by taking aim at how much money you have.

How can someone who promises you less, deliver you more? They can’t, but that’s not what he’s doing. The less is for you, the more is for someone else.