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To commit the perfect crime, you must have three factors working in your favour: means, motive and opportunity. Over the last two years, giant corporations have benefited from all three. Let me explain.

The “means” were decades in the making, brought about by 50 years of deliberate policy choices that granted some big corporations the market power to corner markets with impunity. The “motive”—profits—can be traced back even further. It’s as old as capitalism itself.

But then came the “opportunity”, with the collision of multiple crises—a global pandemic, supply chain bottlenecks and the war in Ukraine—offering megacorporations a convenient scapegoat. They could now raise prices for consumers to make record profits for their companies and pass along massive payouts to their shareholders – passing it off as necessary to cover costs.

Publicly, CEOs have used supply chain issues and rising input costs to justify increasing prices. But we at the Groundwork Collaborative had a hunch there was more to the story. And we knew of one venue where corporations speak more candidly about their bottom line: quarterly earnings calls.

We heard executives openly bragging about their pricing strategies and their ability to raise prices on consumers—without consequence—in an inflationary environment.

During these calls, public companies are required to accurately report their latest financials every quarter and take questions from shareholders. In 2021, our team at Groundwork began researching them across multiple industries, including food, financial services, housing, retail, and oil and gas. Our findings confirmed our worst suspicions to be true. We heard executives openly bragging about their pricing strategies and their ability to raise prices on consumers—without consequence—in an inflationary environment.

We listened as the CEO of a massive United States grocery chain told investors “a little bit of inflation is always good in our business”, before announcing new rounds of price hikes. Another CEO in the snack industry noted that “consumers experience[d] a lot of disruptions…they haven't fully recognised they were [absorbing] pricing”. This is what economists refer to as reduced consumer price “elasticity”. As corporations raise prices on necessities like food or shelter, consumers have little choice but to accept higher prices on these critical items as they cannot cut back on them. Corporations know this and can hike prices even more – boosting their pricing power.

And even as costs have come down and pandemic restrictions have eased, these companies have little intention of returning those savings to consumers. One industrial supply giant told investors that even as costs decline, the company expects “sizable margin expansion” (read: bigger profits) because of “extremely sticky” prices. The head of the United States’ largest automotive parts retailer said the company raised prices owing to inflation, and “following periods of higher inflation, our industry has historically not reduced pricing to reflect lower ultimate cost”. Or as the CEO of a key oil and gas multinational said last autumn: “I think in the short term, everyone will squeeze what they can”.

This asymmetric pass-through—also called “rockets and feathers”—is hallmark evidence of corporate power. It refers to how corporations are quick to raise prices when costs increase but are slow to bring them down as prices ease. Profit margins get a prolonged boost, benefiting corporations at the expense of consumers, most notably in the oil and gas sector.

Historically, corporations have tried to boost profits by chasing market share: undercutting competitors, snapping up customers and growing their volume. But corporations are using converging crises to juice their profits, raising prices more than their increased costs justified and driving them up for the rest of us. A recent paper covering inflation demonstrates that firms have an incentive to tacitly collude to protect their profit margins when faced with shared cost increases.

Megacorporations have taken that pricing strategy to the bank. In the second quarter of 2021, corporate profit margins reached their highest levels in over 70 years. By the second quarter of 2022, nonfinancial corporations had raised their profits nearly 100% over the course of the previous year, blowing pre-pandemic profit margins out of the water. 

 The lesson from the past two years is clear: we must address the deep power imbalances in our economy to ensure this level of corporate profiteering cannot occur again.

Shining a light on corporate profits and earnings calls has driven additional research into the links between price hikes, profits and inflation. For example, the Kansas City Fed found that corporate profit margins in 2021 contributed “substantially” to inflation. Researchers from the Boston Fed have also noted that corporate concentration could be amplifying the inflation we’re seeing today. And the Roosevelt Institute found that despite rapidly rising input costs, corporations were able to raise prices so much that they dramatically increased the markups they charged consumers. Corporations that already charged more pre-pandemic increased their markups even more, highlighting the key role market power played in exacerbating inflation.

Thankfully, there is a light at the end of the tunnel. Inflation has started to cool, thanks to easing supply chain pressures and slowing corporate profits (though they are still higher than they were before the pandemic). But the lesson from the past two years is clear: we must address the deep power imbalances in our economy to ensure this level of corporate profiteering cannot occur again. That means learning from the failed policies of the past and undoing the damage done by decades of disinvestment, deregulation and corporate consolidation. Corporations have been given the means to corner markets, build power over our economy and prioritise shareholders over people.

Regulators should strengthen and enforce antitrust measures to crack down on industry consolidation. Governments must invest in supply chains and build the resilience we need to handle crises with global implications, like climate change, without corporations scoring big. We should also impose additional taxes on excess profits—which at the very least will disincentivise price gouging—and give those revenues back to people who have been squeezed by high prices the most.

Most importantly, we should be centring people in our policymaking. Making this shift is critical to creating economic conditions where everyone—not just giant corporations and the privileged few—can thrive. Because as we like to say at Groundwork: “We are the economy”.

The sooner policymakers understand that—in the United States and across our global economy—the sooner we can build an economy that works for us all.