Profit and inflation

Inflation.

If you are like me, you’re probably sick of hearing this word. However, inflation is a reality we must face.

Like an unwanted kick below the belt, prices on everything we use in our day-to-day lives, such as food and fuel, have risen faster than houses are selling.

According to Statistics Canada, the consumer price index rose 6.8 per cent in April – the highest rate of inflation since January 1991 (6.9 per cent).

Overall food costs rose 8.8 per cent compared to a year ago, and Canadians paid 9.7 per cent more for food at stores last month. Restaurants say their food costs are up 6.6 per cent.

Russia’s invasion of Ukraine in late February has been the main reason attributed to many increases in food costs, as well as the increased costs associated with fertilizer and natural gas.

If you’ve filled your vehicle at a local gas station you would have paid 36.3 per cent more than you did a year ago.

Who would have ever expected to say $1.859 per litre was a bargain? Not me.

And housing prices… the multiple stories in this week’s paper more than speak for this issue.

As someone who has a background in business, I understand that the cost of producing goods and providing services increases over time – raises are given to employees, products costs more to obtain, etc. However, a glance at some of the headlines makes you shake your head and wonder if the inflation we are experiencing is “natural” or if it is a result of greed.

Last month, the Toronto Star published a story titled “Profiting from inflation” that outlined how 26 per cent of recent price inflation can be attributed to higher corporate profits rather than supply chain issues or labour costs.

Cargill, a global food company with many locations in our region, reported almost $5 billion in net income for 2021, up 64 per cent from the $3 billion in earned in 2020.

Not surprisingly, this was the largest annual profit reported by the company in its 156-year history.

Grocery stores fared pretty darn well as well. According to the Toronto Star’s report, Canada’s grocery stores collectively made $3.9 billion more in pre-tax profit than they did before the COVID-19 pandemic.

“Even as their supply costs went up, the industry hit record-high profit margins in the first quarter of 2021, all part of a banner year that saw grocery CEOs take home millions in bonuses,” states the article.

David Macdonald, senior economist at the Canadian Centre for Policy Alternatives (CCPA), is quoted in the story as saying, “We always think there’s this complicated story we have to tell about inflation — about government spending, and about too much money chasing too few goods — but I think it can be boiled down to a much simpler story: that companies are taking advantage of this situation by increasing their prices to pad their profits.”

Across all sectors of the economy, the report claims corporate profits have grown $22.9 billion since 2019, reaching an all-time high of $445 billion in 2021.

To be fair, companies also reported greater expenses. A CCPA study noted expenses grew by $120.7 billion between 2019 and 2021, however revenue grew by $152.2 billion.

Inflation is a fact of life – we’ve lived with it for years – however it shouldn’t be as bad as it is, based on the findings of the aforementioned story.

However, we live in a world where we all want bigger and better – bigger and better house, bigger and better car, and a bigger and better return on our investments.

While it is too early to ultimately tell if the war in Ukraine is merely an excuse for companies to raise prices, evidence seems to be pointing in that direction when it comes to the COVID-19 pandemic.

Only time will tell.

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Mike Wilson is the editor of Midwestern Newspapers. Comments and feedback are welcome at mwilson@midwesternnewspapers.com.

Editor