US corporate monopolies worsen inflation: Fed report
Do not pass go. Don’t collect $200. In fact, why not go ahead and give Mr. Monopoly everything your money?
According to economists at the Federal Reserve Bank of Boston, growing corporate concentration – when just a few large firms dominate an entire industry – is making inflation worse.
In a new report, the agency finds that when production suddenly becomes more expensive for companies, they often pass those costs on to consumers in the form of higher prices. However, when industries are more concentrated and there is less competition, this price increase becomes about 25 percentage points higher.
In other words, monopolies are not necessarily cause inflation. But since they tend to overcompensate for rising production costs by rapidly increasing their prices, they can make the problem worse. The report did not single out any particular industry, but in recent years, oil and meat packing industriesto name just two, are among those most often cited as being dominated by a handful of conglomerates — to the detriment of consumers.
The authors of the report from the Boston Fed, the regional arm of the US Federal Reserve (currently responsible for controlling inflation)use data from 2005 to 2018. Since then, competition among US companies has only decreased, making their estimate conservative.
“The US economy is at least 50% more concentrated today than it was in 2005,” the economists wrote.
Price increases don’t last forever. Historically speaking, prices typically stabilize after about a year, the Boston Fed found.
Still, these are unusual times. In March, US inflation rose 8.5% from a year earlier, a level not seen since the 1980s. As the global economy emerges from the pandemic, inflation is rampant in many advanced economies, although there are have an open debate on why this particularly hits the United States.
Progressive lawmakers like Massachusetts Sen. Elizabeth Warren pointed to record profits in industries with particularly high inflation rates as an obvious impetus. (Conservatives have sharply criticized this notion).
Take the oil industry, for example. In the United States, drivers pay about $4.60 per gallon on average, an all-time high, according to the AAA automobile club. The latest data from the Labor Department shows that oil prices have jumped more than 80% since last spring. Over the same period, gasoline prices have risen nearly 44%.
Meanwhile, oil conglomerate Shell posted a record $9.1 billion profit from January to March, and BP reported its most profitable quarter in a decade. While Russia’s invasion of Ukraine has undoubtedly messed up the world’s oil supply, politicians like Warren say corporations are taking advantage of the situation.
Now there is data from our central banking system that backs them up.
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