Inflation is being driven by corporate greed

Speaking on CNBC Thursday morning, Rep. Kevin Brady (Texas), the top Republican on the Ways and Means committee, sounded a familiar refrain, arguing the labor situation in the U.S., which has been characterized by a tight job market and rising nominal wages, was behind lingering consumer inflation.

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Ways and Means Republicans have gone so far as to blame inflation on a “wage-price spiral,” the mutually reinforcing pressure of wages on prices and vice versa that led the Nixon administration to freeze both for 90 days during high inflation in the 1970s.

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But a November research paper from the Bank of International Settlements (BIS) – sometimes referred to as the central bank for central banks – downplayed this relationship in the global economy. BIS found that even when wage-price spirals do take hold in advanced economies, they don’t typically spiral out of control, running counter to their name and to the Nixon-era example that made them famous. Rather, they tend to peter out.

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At their latest meeting in November, Federal Reserve bankers disagreed, saying that a wage-price spiral “had not yet developed.” They noted that “ongoing tightness in the labor market could lead to an emergence” of one, but this week’s loosening unit labor cost data could make that less likely.

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The continued drop in labor costs has economists pointing to private sector profits as a main driver of inflation, undercutting arguments from the Federal Reserve regarding its plan to bring down consumer prices that remain around 40-year highs.

Unit labor costs, which are measured by the Labor Department to determine how much businesses are paying for workers to produce their goods and services, have been getting outpaced by profits over several quarters, leading economists to call out a trend.

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Earlier this week, [Paul Donovan, an economist with Swiss Bank UBS,] said the slowing labor cost growth underscored “how little of the current inflation is labor related.”

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“There are some corporations that are earning extraordinary profits right now. That’s even a technical term – ‘extraordinary.’ That’s like oil and gas and meatpacking,” Claudia Sahm, former Federal Reserve banker and founder of Sahm Consulting, said in an interview.

“But a lot of small business owners are getting crushed. Everything they need to put stuff on the shelves has gone up in price. They’re not making a lot in profits, and they’re a very important part of the economy. So I don’t like to lump everybody together.”

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More targeted proposals to fight inflation and price increases by businesses have been advanced by Democrats in recent months, mainly in the form of windfall profits taxes on the oil sector, which the United Nations has singled out as a primary source of commodity inflation.

One such proposal was put forward in California this week by Gov. Gavin Newsom (D).

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Democrats Rep. Ro Khanna (Calif.) and Sen. Sheldon Whitehouse (R.I.) have their own similar proposal on the national level, which would levy a tax on the difference between the current price of oil per barrel and the average cost between 2015 and 2019.

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“We’ve seen this mistake before,” [Rep. Kevin Brady (Texas), the top Republican on the Ways and Means committee,] said. “This is a Carter-era tax hike that slashed production while making the U.S. more dependent on foreign oil. This couldn’t come at a worse time for American families suffering under 40-year high inflation, who are on track to pay the highest prices to keep their homes warm in 25 years.”

  The Hill

Why do I believe Khanna and Whitehouse over Brady?

...but hey, do what you want...you will anyway.