Pub. 18 2021 Issue 4

16 THE ROOTS OF INFLATION AND HOW INFORMATION IS REPORTED By Mark Anderson, NMBA Legal and Legislative Assistant I f you pay attention to economic news in the United States with any regularity, you will notice a pattern emerge rapidly. Anytime a source of economic consternation (inflation, unemployment, supply chain issues) arises, there is a seemingly deliberate attempt to mystify the problem, to make it even more complex than it already is. For a variety of factors, it is remarkably difficult for our mainstream press to present any kind of coherent explanation to the general population about many of society’s most urgent problems. As a result, you have an American public with many confused, contradictory beliefs and is willing to blame sources that have very little actual power. One of the biggest reasons for this confusion is our media’s unwillingness to state how much corporate gains lead to myriad externalities. As a result, you have pundits who attempt to muddy the entire process and, in some cases, shower praise onto the individuals most responsible for causing the problem. Let’s examine the last two to three months of economic news, where inflation has been a recurring topic of conversation. Inflation is a complicated concept on its own, but it is made vastly more complex by how it is reported. Factors like increased labor costs, supply chain bottlenecks, and increased consumer demand are all speculated as factors, but perhaps the most important factor, corporate consolidation, is rarely mentioned. Massive multinational corporations have all the power to shape the market, yet the media often treats them like innocent actors abiding by honest business practices. Instead, you will hear speculation that low-wage workers — the people with the least amount of power in our economy — are causing colossal economic disruption because they’re making slightly more. On the flip side, politicians and corporate executives — people with all the power — are almost always treated as if they’re acting in good faith, as if their actions do not directly affect the economy. It’s the financial journalism equivalent of reporting on a crime while trying to blame everything except the actual perpetrator. According to a recent report from Bloomberg, “Faced with rising prices for everything from lumber to oil to labor and computer chips, chief executive officers have cut costs and boosted prices for their products. The strategy appears to be working, with first quarter income from S&P 500 companies jumping five times as fast as sales, data compiled by Bloomberg Intelligence show. As a result, their net margin — which measures how much profit companies are squeezing from their revenue — has risen to a record high, according to Bank of America Corp.” According to Nicholas Colas, co-founder of DataTrek Research, “To a fundamental analyst, inflation is called ‘pricing power.’ And it is very good for incremental corporate earnings.” Colas also mentions, “Corporations are not being forced to raise prices to stay afloat. They are choosing to raise prices to maintain large profit margins because they have enough market power to do so without losing customers.” A perfect example of how this process unfolds is with consumer product giant Procter and Gamble (P&G). In April 2021, P&G announced that it “will start charging more for household staples from diapers to toilet paper, the latest and biggest consumer- products company to announce price hikes.” To justify the increases, P&G cited “rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods.” The price increases, P&G said, will “be in the mid-to high-single-digit percentage points.” In the fiscal quarter ending March 31, 2021, P&G reported an