A new report from the Center for the Future of Work found that in development corporate profits Compared to the pre-pandemic this year, the focus has been on a few sectors where consumer prices have also risen the fastest.
Report author and economist Jim Stanford analyzed the profitability of the 52 business sectors tracked statistics canada, and found that only a third of these areas were responsible for boosting overall corporate profits. The combined profit after tax of the 15 most profitable sectors increased 89 percent during the most recent 12-month period compared to the four quarters before the pandemic.
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Meanwhile, gains in the other 37 sectors tracked by Statistics Canada fell during the same period. Profit in all regions combined was up nearly 30 percent.
Stanford said after-tax corporate profits in 2022 will still account for 17.4 per cent of Canada’s gross domestic product, the highest share in history.
The oil and gas sector topped the most profitable list since 2019 with $38 billion in profit or an increase of over 1,000 percent. real estate, building products, automotive dealers, grocery stores and food manufacturing.
In fact, the report says that large price increases on eight specific products sold or produced by those sectors accounted for more than half of overall inflation in the past year, based on data from Statistics Canada.
Stanford said they found the numbers “shocking”.
“The concentration of profits in those sectors, and the concentration of price pressures in the products produced by both sectors, really show that this is not a generalized overheating problem,” he said.
These eight products were domestic fuel oil, domestic natural gas, gasoline, mortgage interest, groceries, home maintenance, motor vehicles and insurance, and together Stanford calculated they accounted for 3.51 percentage points of the overall October inflation rate. , which was 6.9 percent. This is despite the fact that those eight products account for less than 30 percent of the weight of the CPI basket, as measured by Statistics Canada.
Stanford argues that this data proves that rising corporate profits are the leading cause of inflation, as those eight products alone account for more than half a percentage-point increase in the latest inflation numbers.
Some of those eight products, such as gas, also have an impact on things like food prices, the report notes, which is also a factor in inflation.
Some economists and the Bank of Canada have expressed concern that as wages rise in inflationary conditions, this could lead to inflation and lead to what is known as a wage-price spiral. In July, Tiff McCallum warned employers not to build inflation into long-term contracts.
But so far, wages have not outpaced overall inflation. In fact, corporate profits have grown nearly three times faster than wages since the start of the pandemic, Stanford said.
He said the Bank of Canada has been paying a lot of attention to the role of the labor market in persistent inflation in recent months.
“The Bank of Canada’s argument that inflation is up because Canadians have too much work and too much money to spend is completely contradicted by the evidence.”
The Bank of Canada has said that inflation increasingly reflects domestic pressures, and has described Canada’s low unemployment rate as “unsustainable”.
The report recommends policy makers consider measures other than raising interest rates, which they argue “would be better than a ‘cold shower’ of job-depleting monetary tightening.”
These include target price regulations, which limit how much companies can profit from sector-specific disruptions such as energy or housing; excess profits tax; and to offset financial support for consumers financed by said taxes. Stanford notes that many European countries have already implemented some of these types of things, such as price caps on energy, or additional profits taxes for the energy sector that go to domestic transfers. He noted that while there are examples of these measures within Canada, such as the recent tax on large bank profits, such measures are not unprecedented.
“We have taken it for granted that companies are allowed to charge whatever the market will bear, even in a national emergency. And our response to the inflation that stems from that perception is to punish people who are trying to pay for stuff that’s too high,” he said.
“With targeted measures like this, you can take a lot of the steam out of this inflationary problem instead of chilling the entire national economy.”
– With files from Nojoud Al Malles
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