Washington, D.C. February 17, 2022 – During a hearing of the Senate Banking, Housing, and Urban Affairs Committee, United States Senator Elizabeth Warren (D-Mass.) called out corporations for hiding behind inflation to raise consumer prices and boost profits.
In questions to members of the Council of Economic Advisers, Senator Warren called out the CEOs of Kroger, Tyson Foods, and Chipotle, just a few of many corporate executives who have been bragging about raising prices on their customers to boost their profits. For example, the CEO of Tyson Foods, one of the Big Four conglomerates that controls as much as 85% of the meat market, said the company has “restructured our pricing approach,” and are “asking (consumers) to pay for inflation.” However, Tyson’s most recent earnings report shows that it nearly doubled its profit margin over the year, achieving double-digit profit margins for only the fourth time in the last 30 years – suggesting that the company is doing more than simply offsetting the company’s cost increases.
Senator Warren applauded the Biden administration’s actions to promote market competition, to crack down on profiteering and price gouging, and to enforce antitrust laws to fight inflation and lower prices for hardworking families
Senator Warren has been calling out corporations for their roles in jacking up prices for American consumers and driving inflation.
- During a hearing last week, Senator Warren called out private equity and other Wall Street investors for exacerbating inflation by jacking up prices and released responses from three corporate landlords that have been increasing rents, driving up housing costs, and raking in profits amid housing shortage.
- Senator Warren called on Secretary Raimondo to use CHIPS for America Act funding to push back against industry consolidation in the semiconductor industry, address supply-chain resiliency, and bolster competitiveness in the industry. The global chip shortage has resulted in significant price increases for American families and contributed to the recent increases in inflation, as well as job losses due to auto plant shutdowns.
- Senator Warren slammed Hertz’s $2 billion dollar buyback plan, which would line the pockets of company executives and the private equity firm Apollo Global Management, while they raise rental car costs for consumers.
- Senator Warren called out the 11 energy companies that are inflating natural gas prices for consumers while reaping record profits.
- Senator Warren called on the Department of Justice to investigate the poultry industry’s anticompetitive behavior as turkey and chicken prices have soared.
Transcript: The State of the American Economy: A Year of Unprecedented Economic Growth and Future Plans
U.S. Senate Banking, Housing, and Urban Affairs Committee
Thursday, February 17, 2022
Senator Warren: Thank you, Mr. Chairman. Before I jump into my questions, I’d like to urge my Republican colleagues who are taking the time to attend the hearing today to do their jobs and vote on our five Fed nominees. If you’re going to question today’s witnesses about inflation, then you should be just as motivated to actually fight inflation by making sure the Fed has all hands on deck –and that means voting on these nominees now.
So, let me turn to my questions. During President Biden’s first year in office, the economy added a record 6.6 million jobs – more jobs than those added in the first years of the past four Republican presidents combined. Workers are benefiting too, with wages growing at their strongest pace in years.
This is particularly impressive because one year ago many economists were predicting that at this point we’d still be caught up with high unemployment and slow economic growth as the world has struggled to deal with the fallout from the pandemic.
But this good news has also brought some bad news: inflation.
Now, you might think inflation would also be bad for companies too. After all, an increase in the costs of doing business would likely eat into a company’s bottom line. But that’s not happening. In fact, the CEOs of some of the biggest companies have been bragging to their investors that inflation has created a terrific opportunity for them to boost profits.
Take the grocery chain Kroger. Kroger has seen its business boom during the pandemic, with its stock price rising nearly 40% over the past year. Kroger’s CEO recently told investors that “a little bit of inflation is always good in our business.”
Dr. Boushey, would you agree that it’s easier for companies like Kroger to raise prices in an inflationary environment because consumers are generally aware that prices are going up, so companies are able to hide behind inflation and expand their profits?
Dr. Heather Boushey, Member of the Council of Economic Advisers: Well, as you know, Senator. President Biden is very attuned to kitchen table budget issues. And he has been very focused on asking the regulatory agencies to be on the alert for price gouging, and I have in front of me a long list of things that have been happening over the past year on his work on to make so that markets are competitive and fair. But let me just note one, which is the Department of Justice and USDA have worked together to set up a website where farmers and ranchers can say what they see as problems in their industry. And that’s just one of many things. It’s an important issue.
Senator Warren: So, an important issue but the point I’m trying to make here is the companies kind of have to draft in behind the inflation and I take it you agree that that’s what’s going on? Okay, I see you nodding your head yes. I’ll take that as a yes.
Let’s go to another example. In a call with investors last week, the CEO of Tyson Foods, one of the Big Four conglomerates that controls as much as 85% of the meat market, said they’ve “restructured our pricing approach,” and are “asking them (them being consumers) to pay for inflation.”
Dr. Bernstein, if all Tyson was doing was raising prices to offset their production costs due to inflation, would you expect their profit margins to stay roughly the same?
Dr. Jared Bernstein, Member of the Council of Economic Advisers: Roughly the same.
Senator Warren: Roughly the same.
Dr. Bernstein: Because their price increases would offset their cost increases and would pull their profits up.
Senator Warren: Okay so their profits would stay roughly the same if that’s all that was going on. Of course, that’s not what happened. Tyson nearly doubled its profit margin over the year to 11.3% – only the fourth time in the last 30 years that the company has achieved double-digit profit margins.
And Tyson isn’t making record profits because it’s selling more – it’s because it’s charging more. In fact, the number of beef products it sold declined 6% over the year, while the price of beef was up 32%.
Let’s do one more example here. Another phrase we hear thrown around is pricing power. In a recent interview, the CEO of Chipotle said, “We’re pretty fortunate with the pricing power that we have,” and that “If we need to take more pricing, we have room to do it. To date, we’ve seen no resistance from our customers.”
This sounds a lot to me like what Fed Chair Powell said when he was here last month: big companies are “raising prices because they can.”
So, Chair Rouse, let me ask you. For those of us who don’t speak economist, is it right to say that when executives talk about “pricing power,” they’re referring to a company’s ability to raise prices and extract profit out of consumers without worrying as much about losing business?
Dr. Cecilia Rouse, Chair of the Council of Economic Advisors: I’d say it is fair to say that a company has pricing power when raising prices won’t cause them to lose many customers.
Senator Warren: And can I just ask, I know I am out of time, what is it that gives these companies pricing power? Does concentration in an industry give companies more pricing power?
Dr. Cecilia Rouse, Chair of the Council of Economic Advisors: So, market concentration does tend to create more pricing power, which is one reason why increasing competition is such an important component of the Administration’s economic agenda because we know that increase competition also helps workers as far as innovation and generally helps markets
Senator Warren: Well, thank you very much. I appreciate it. And thank you Mr. Chairman. I just want to say I’m glad the Administration is not standing by. We can go after this concentrated power industry by industry and that’s what will bring prices down.