Corporations have become more willing to increase their prices, shifting the burden of high inflation onto consumers. This trend has caught the attention of the Bank of Canada, which is struggling to control inflation. Previously, businesses were cautious about passing on increased costs to customers, fearing they would lose them. However, in the current climate of high inflation, companies are less concerned about losing customers and are more willing to raise prices. This means that households are bearing the full impact of inflation. It is difficult to quantify how much of Canada’s current inflation is due to price hikes beyond cost increases, but other central bankers have suggested that corporate profits play a significant role in inflation. This phenomenon, known as “profit-led inflation,” requires a strong narrative to justify price increases to consumers. However, consumers may eventually reach a tipping point and revolt against these price hikes. This has been observed in Europe, where consumers have started to rebel against inflated prices in the grocery aisle. The UK, for example, has seen major chains offering deep discounts to retain loyal customers. Similarly, the US has also experienced price increases outpacing market conditions, with markups responsible for a significant portion of inflation. Economists argue that it’s important to acknowledge the role of corporate profits in driving inflation, rather than solely blaming other factors. While consumers have been advised to cut back on expenses or increase income, it is unfair to place the burden of solving inflation on them. Evidence suggests that consumers are already struggling, with declining grocery and retail sales. Consumers cannot be expected to constantly seek out bargains and should not be solely responsible for solving the inflation problem. Despite this, there are signs that profitability levels are returning to normal, indicating that profits played a significant role in the recent inflation surge.
