No, Kamala! Inflation is not due to grocery stores' “record profits”

Kamala Harris blames grocery store profits for price inflation. She has even put forward a plan to stop “gouging” food prices, which sounds a lot like price controls.

To Harris' credit, she's been a smart politician. The “greedy corporations” cliche resonates with many Americans. In fact, I often see posts on social media about corporate greed and inflation. Here's the latest meme making the rounds, specifically in the grocery store.

That sounds plausible, especially if you already distrust corporations. The problem is that it's not true.

Make no mistake; it's definitely good fodder for people who don't understand the root causes of price inflation (money creation by central banks and governments). And it's very helpful for government people who don't want you to know they're making your life shittier. But this meme has little to no basis in reality.

Inflation explained

In any discussion about inflation, it is important to distinguish between Price inflation And Monetary inflation.

When most people say “inflation,” they mean “prices are rising” – Price inflation. All sorts of things can drive up prices – including greedy corporations. But the current price increase we are facing has a specific cause that Kamal Harris and the rest of the political class don't want you to know about.

Monetary inflation (defined precisely as the increase in the money supply and credit) causes all prices in the economy in general to rise. In other words, price inflation is a symptom monetary inflation.

And what causes monetary inflation?

Central banks and governments on fiscal and monetary policy! It's about printing money!

It's important to understand that monetary inflation not only leads to rising consumer prices (e.g. food), but also drives up asset prices. So the value of your home goes up. The price of oil and other commodities goes up. Stock prices go up.

And guess what: corporate profits are rising.

It's not so much that things are getting more expensive. What's really happening is that the value of a dollar is going down. As the Federal Reserve creates more and more dollars to support federal government borrowing and spending, each dollar is worth less. That means it takes more dollars to buy the same amount of things. Businesses Are Although they are enjoying higher profits, they are not doing any better than they were a few years ago.

I don't doubt that profits are at record levels in absolute dollar terms, so the meme is technically correct. But that doesn't mean companies are doing better. Adjusted for inflation, record profits are no longer records.

Think of it this way: If you get a big raise this year, I might say you're making “record profits” at work. But you'll probably tell me that everything is much more expensive and that doesn't really make you any better off. Your raise is just another inflationary phenomenon.

Are grocery retailers making “record profits”?

A company's profit margin provides a better overview of operations. This is the amount that a company has left after deducting all direct and indirect costs.

So are grocery store profit margins at record levels?

Some people have rightly pointed out that profit margins in the grocery business have historically been razor thin anyway, generally between 0.5 and 3 percent. My wife used to work in the grocery business and she called it “penny profit.” If a grocer sells a can of peas for a dollar, the profit is about 1 cent.

But that's not really the point. The question is not what the profits are in dollar terms. The question is: are their profit margins increasing? If grocery stores were actually charging extortionate prices, their profit margins would increase.

They are not.

This is Kroger's profit margin over time. As you can see, margins are currently in line with historical averages and below a long stretch during a relatively quiet economic period in the 2010s.

Here is Walmart's profit margin. It is slightly higher than Kroger's because Walmart is a hybrid grocer and retailer. However, its profit margin is currently on the lower side of average.

You'll notice that both big companies did quite well during the pandemic, when the government shut down most small businesses and forced customers to buy everything from the big guys. But profit margins fell as inflationary pressures from money printing and stimulus programs hit the economy.

The bottom line is that corporate profits in the food business are not reaching record highs in real terms.

So the real question you should be asking is not, “Why are grocery store profits at record highs?” The real question is, “Why does the government keep stealing our purchasing power and making us poorer?”