‘The elephant in the room’: Top Fed official says corporate price hikes are fueling inflation

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Progressives on Monday pointed to remarks by Federal Reserve Vice Chair Lael Brainard acknowledging the role of corporate profiteering in exacerbating inflation to underscore their opposition to interest rate hikes and other monetary tightening that favors Big Business over workers.

While attributing high inflation to the ongoing Covid-19 pandemic and Russia’s invasion of Ukraine, Brainard—who was addressing a meeting of the National Association for Business Economics in Chicago—asserted that “there is ample room for margin recompression to help reduce goods inflation” in the retail economy.

“Retail margins have increased 20% since the onset of the pandemic, roughly double the 9% increase in average hourly earnings by employees in that sector,” she noted. “In the auto sector, where the real inventory-to-sales ratio is 20% below its pre-pandemic level, the retail margin for motor vehicles sold at dealerships has increased by more than 180% since February 2020, 10 times the rise in average hourly earnings within that sector.”

Brainard’s nod to what one observer called “the elephant in the room” was secondary to her insistence that monetary tightening in the form of higher interest rates is the best way to tackle inflation.

“It will take time for the cumulative effect of tighter monetary policy to work through the economy broadly and to bring inflation down,” she said. “In light of elevated global economic and financial uncertainty, moving forward deliberately and in a data-dependent manner will enable us to learn how economic activity, employment, and inflation are adjusting to cumulative tightening in order to inform our assessments of the path of the policy rate.”

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