Rakeen Mabud, Groundwork Collaborative chief economist and managing director of policy and research, joins Yahoo Finance Live to discuss what’s driving price increases for consumers.
Video Transcript
AKIKO FUJITA: Well, inflation continues to be in focus from Wall Street to Main Street to Washington. The Producer Price Index soaring nearly 20%– or 10%, 10% in January from a year ago. And our next guest recently testified on Capitol Hill on pricing and the root cause of the price spikes.
Let’s bring in Rakeen Mabud. She’s a chief economist at Groundwork. And we should mention Groundwork is an economic policy think tank based in DC. Rakeen, it’s good to talk to you today. You say that the price pressures that we’re seeing right now is all about pandemic profiteering. What do you mean by that? What are you seeing?
RAKEEN MABUD: Yeah, thanks for having me. So, you know, my organization, the Groundwork Collaborative, has combed through hundreds and hundreds of earnings calls. And this is where CEOs are obviously telling their investors what they’re seeing in terms of their financial situations. And what we see is across sectors, across companies, CEOs are just crowing about how they can raise prices on consumers, all while bringing in record profits. And that’s really the root of a lot of the price increases that we’ve been seeing over recent periods.
BRIAN CHEUNG: Rakeen, it’s Brian here. It’s good to chat with you about this because it’s such an interesting and important topic because some of these price increases could be just part of the organic higher labor costs, for example, if they’re paying their employees more. Maybe it’s not as nefarious if they have to raise the cost of what they’re selling to make sure that they can meet their margins.
But on the other hand, there is anecdotal evidence, in some cases, of price gouging, in which case a heavily concentrated industry with one or two major players can charge whatever they want to charge. So how do you kind of parse out what’s happening behind a company’s decision to raise prices and whether it’s for a more nefarious reason than another?
RAKEEN MABUD: Yeah, let me take the wage point first because I think that one is pretty important. You know, there’s a good amount of research that shows that wages and prices are not linked right now. So the sectors where we’re seeing the highest price increases are not the sectors where wages are actually going up. So wages don’t seem to be a driver at all with the current price increases.
And in terms of how we can see nefarious intent, you know, don’t take my word for it. We have hundreds of earnings calls that show exactly that. So let’s take what might be a typical day, right? You wake up, you want a cup of coffee. I know I did this morning. You head to Starbucks. Starbucks has raised prices across the board. They’ve also seen their profits go up about 30%.
Maybe for lunch, you want to get Chipotle. Chipotle has really– Chipotle’s CEO has really been talking on their earnings calls about how they’re so lucky that their consumers are not reacting to the price increases. And they see that their ability to raise prices is a real strength for the business.
Maybe in the afternoon, you stop by a drugstore because you realize we’re still in a pandemic and you need some high quality masks. Well, Kimberly-Clark, which is one of the major producers of N95s in the country, between October and January, a 50-pack box of N95 masks, the price of that more than doubled, right? And that is exactly in the period when the CDC changed its guidance to suggest that we all switch to higher quality masks.
As you’re heading home, you know, you’re going to pick up some stuff from the grocery store. You stop by Kroger’s. Kroger’s, the CEO, has said that, quote, “a little bit of inflation is always good for our business.” Maybe you head to the meat section, pick up some chicken or some beef. Tyson, which is one of the four big meatpackers identified by the Biden administration as an industry where there is actually a lot of price gouging, Tyson’s poultry prices, they’ve raised them about 20%. Their beef prices, they’ve risen about 30%. And they’ve seen profits nearly double.
And then maybe, you know, it’s been a long and, frankly, quite expensive day. Maybe you stop by the section in the grocery store and pick up a couple of beers. You know, Constellation Brands, which is a big umbrella company for brands like Modelo and Corona, has also been raising prices and has been really clear that what they want to do is, quote, “take as much as we can” vis a vis pricing from their– what they’ve identified as their primarily Hispanic consumer base.
And so essentially what we see, the earnings calls are really the receipts of what’s happening right now. Prices are going up across the board. And a large part of that is being driven by corporations, who are really– you know, we see it in their profit margins. It’s not just that profits are going up. It’s that profit margins are going up.
AKIKO FUJITA: Rakeen, I wonder if I can play devil’s advocate here because we have also been listening to all the earnings calls. And we have noticed that. You know, we hear from CEOs who have to explain to investors, to shareholders, about how exactly the money is being used. And in the case of a company like Chipotle, they’re not just the only one. When we see the price increase, the share price has moved also up. So what do you say to those who say, this is just the obligation that companies have to shareholders? If that’s the case, what needs to change about the structure?
RAKEEN MABUD: Yeah, I mean, the Kimberly-Clark example I think is a really interesting one. On their earnings call, they actually reported a pretty bad quarter. Yet, they told their investors, don’t worry. We’re still going to get your money, and we’re going to make up that bad quarter by raising prices on consumers. And frankly, what we’re seeing is not a new problem. What we are– we’re seeing these companies use the cloak of inflation to raise prices. But that cloak has been built over the course of decades.
What we have seen, you know, my organization, Groundwork Collaborative, partnered with American Prospect to dig deep into the supply chain. And what we found is 50 years of deregulation, financialization, and rampant corporate concentration that basically created a bunch of mega companies and turned our supply chains over to those same mega companies. What they did with that power, they built this incredibly brittle supply chain. So that means that if one link in that supply chain breaks, the whole system breaks down, and prices go up, or we see supply bottlenecks, which we’ve been hearing about.
But a really brittle supply chain, that just-in-time supply chain also allows them to boost short-term profits. So they’ve built a system that works for them, but not for anyone else. And at the end of the day, these companies are using those bottlenecks, those supply shortages, those very real price increases, but adding just a little bit on top to pad those profit margins. And addressing the situation we’re seeing now is really going to take a lot of tools across the toolbox.
BRIAN CHEUNG: Yeah, and everyone feeling the pinch of those higher prices across the board. But thanks so much for breaking all that down for us. Rakeen Mabud, Groundwork collaborative chief economist and managing director of policy and research, thanks for stopping by this afternoon.
