Inflation profiteering

There is no single cause for inflation, which reached an annual rate of 8.5% in March. That's the fastest increase in prices since 1981. There are continuing problems with supply chains, rising prices for raw materials, and limited supply. There is a tight job market, which increases costs for labor. And, in many sectors, there is pent-up demand from the pandemic. 

But there is also corporate profits. Faced with rising prices, corporations had three options: 

1. Corporations could absorb some or all of the costs, reducing profits

2. Corporations could pass on the increased costs to consumers, keep profits relatively flat

3. Corporations could raise prices beyond their increased costs, increasing profits

Most corporations have enthusiastically selected option 3. In 2021, "[c]orporate pretax profits surged 25% year over year to $2.81 trillion." This was "the largest annual increase since 1976." After-tax profits increased even more dramatically, rising "37% year over year, more than any other time since the Fed began tracking profits in 1948." Prior to 2021, corporate profits have reached 13% in a quarter once in 70 years. In 2021, corporate profits exceeded 13% in every quarter. 

The extraordinary increase in profits is evidence that "outsize price hikes are at least partially responsible for rising inflation." Isabella Weber, professor of economics at the University of Massachusetts Amherst, told NPR in February that "companies have bragged about how they have managed to be ahead of the inflation curve, how they have managed to jack up prices more than their costs and as a result have delivered these record profits." Weber noted that these profits were achieved by companies that "have increased prices by more than cost."

Since February, inflation has accelerated further. Many of the nation's largest retailers are exploiting the situation to inflate their profits, according to a new report from Accountable.us. 

Amazon increases profits by $12 billion in 2021, says it has to increase prices in 2022

In February, Amazon announced that it was raising "the price of its annual Prime subscriptions from $119 to $139 per year in the United States." (Monthly subscriptions increased as well, from $12.99 to $14.99.) The company said this was necessary "to compensate for the rising costs of labor and transportation in its distribution network." The price increase went into effect on March 24. 

But Amazon fared extremely well in 2021 with the old pricing structure. Its net income increased by $12 billion — from $21.3 billion in 2020 to $33.4 billion in 2021. Some of that increase was due to Amazon's investment in an electric car company, Rivian Automotive. But net operating income still increased $2 billion — $22.9 billion in 2020 to $24.9 billion in 2021.

In March 2022, Amazon announced it would spend $10 billion to purchase its own stock, a move intended to increase its stock price. New CEO Andrew R. Jassy was also awarded a total compensation package of $212,701,169. The ratio of Jassy's compensation to the average Amazon worker, who makes $32,855, was 6,474-to-one.

Costco raised prices across the board, increased profits by $1 billion

Last May, Costco complained of "inflationary factors," including "higher labor costs, higher freight costs, higher transportation demand… and, in some cases, higher commodity prices." CFO Richard Galanti said that consumers should expect price increases on paper goods, aluminum foil, meat, plastic products, soda, cheese, bottled water, and rotisserie chicken. In December, Costco said prices "have increased between 4.5 to 5%" in its stores. The company plans to increase its membership fees by $5-10 in 2022 or 2023.

The increased prices, however, did not just cover Costco's increased costs. They also fattened Costco's bottom line in its 2021 fiscal year, which ended last August. Costco's performance was "record-breaking" with over $5 billion in profits — $1 billion more in profits than its 2020 fiscal year. Profits have continued to increase. In Costco's last quarter, which ended February 13, 2022, the company recorded profits of $1.3 billion, up from $915 million a year earlier. 

Costco also spent $5.75 billion in its 2021 fiscal year on dividends for shareholders, up from $1.48 billion the prior year.

Lowe's "better product pricing" drives massive increase in profits

Lowe's was able to increase its margins in its 2021 fiscal year, which ended in January 2022. The company attributed higher margins to "better product pricing relative to costs." In other words, Lowe's raised prices by more than the increase in costs.

The higher prices drove large increases in profits. Lowe's reported $8.4 billion in profits for its 2021 fiscal year — an increase of $2.6 billion over the prior year. Lowe's also spent $15.1 billion on stock buybacks and dividends in 2021. 

Looking ahead to 2022, Lowe's expects to enjoy "the ongoing benefits of our new pricing strategies." While it expects overall sales to be flat, it is predicting "that profit will grow by approximately 8% to 13%." 

TJX says inflation is a "major opportunity" to increase prices, enjoyed "record" profits in 2021

TJX, the parent company of TJ Maxx, Marshalls, HomeGoods, and other brands, described "inflationary price increase[s]" as "a major opportunity." In a February 2022 investor call, CEO Ernie Herrman said that despite "freight and wage cost pressures" its "retail pricing strategy is working very well." Herrman said that, as a result, he was confident TJX could keep "improving our profitability when the macro environment normalizes." Herrman bragged that the company had "really healthy margins" that were "really driven by a large part by the pricing strategy."

TJX had $3.28 billion in profit in 2021, up from just $90.4 million in 2020. While the 2020 figure was distorted by the pandemic, the $3.28 billion was a "record" for the company. The company also spent $1.25 billion on dividends and $2.17 billion on stock buybacks, which were also records. 

AriZona iced tea is still 99 cents

Not every company has chosen to exploit inflation to increase profits. 

Aluminum prices have "doubled in the last 18 months." Over the last two decades, the "price of high fructose corn syrup has tripled." But the cost of a 23-ounce can of AriZona iced tea is still 99 cents. That's the same price as when the product debuted in 1992. 

How is that possible? Don Vultaggio, the founder and chairman of AriZona is OK making slightly less money. The 23-ounce cans remain profitable. 

"I’m committed to that 99-cent price — when things go against you, you tighten your belt," Vultaggio told the LA Times. "Consumers don’t need another price increase from a guy like me."

Although Vultaggio is not jacking up prices like his competitors, he's still doing quite well for himself. He and his two sons collectively own 100% of the company and have an estimated combined net worth of $4 billion.