Not all of it, but fattening bottom lines has played a role.
It’s basic economics that when supply and demand are out of balance, prices will rise or fall until they’re in balance again. They teach that in college-level Economics 101 classes.
The pandemic created supply bottlenecks and shortages. This made new cars hard to get, causing used car prices to skyrocket. America has a housing shortage (with roots in the subprime mortgage crisis), which led to bidding wars pushing home prices up (and out of reach for many). There’s also a worker shortage, enabling workers to make wage gains for the first time in generations.
All of these factors contributed to general inflation. But a period of inflation also enables businesses to mask and hide price-gouging, and that’s going on, too. There’s even a term for it: “Greedflation.”
While business profits took a hit from the pandemic shutdowns, since then they’ve swelled, enriching executives and investors but hitting consumers in the pocketbook. A backlash was slow in coming, but most consumers now realize they’re being gouged and many are no longer playing along with it.
The financial media say consumer spending remains strong, and that’s sustaining the economy, which has low unemployment and until recently was growing rapidly. (GDP growth slowed sharply in the first quarter of 2024.) But below the surface, affluent households are on a spending spree, while America’s lower-income families struggle. There are growing signs of distress: Credit card borrowing is up, and default rates are rising.
Now, it appears consumers have had enough of greed-driven price increases. CNBC reported last week that fast food companies face falling sales after raising prices (read story here). CNN says, “Retailers jacked up prices and squeezed consumers. They might have just blinked” and have started cutting prices (read story here).
Manufacturers, suppliers, and retailers have room to do so, because they raised prices beyond what was necessitated by higher labor and material costs. Now, after playing a game of chicken with consumers, the chickens are coming home to roost.