There is a reason the Biden administration wants to prevent the merger of Kroger and Albertsons Supermarket chains. It lowers competition at a time when the largest retailers are now responsible for much of the inflation that has fueled the Fed’s reluctance to lower interest rates.
How do we know that? Retail companies such as Walmart, Home Depot, Costco, Lowes, CVS, and Target have reported record profits since the Pandemic, according to a recent report by Accountable.us, a nonpartisan 501(c)3 organization that reports on “special interests that too often wield unchecked power and influence in Washington and beyond.”
It reports that “a new analysis of earnings data of the ten largest U.S. retailers by market capitalization finding that they all raised consumer prices while collectively reporting $24.6 billion in increased profits during their most recent fiscal years. These same companies also ramped up spending on shareholder handouts by nearly $45 billion year-over-year for a total of $79.1 billion.”
This is while wholesale PPI price inflation for the raw materials that go into retail products is close to zero. The PPI approached zero percent in June 2023 and has remained below 2 percent annually since then. Supply may become oversupply, in other words, continuing to bring down wholesale prices.
This is opposed to the most recent Consumer Price Index of retail prices that is still hot, with annual inflation rate up slightly from 3.1 to 3.2 percent in February, and core inflation with food and energy prices now 3.8 percent.
It highlights the chasm between wholesale and retail prices that must factor in labor and capital costs. But those costs remain largely constant, so much of the difference must come from higher profit margins of retailers.
Voices are now growing louder for an earlier rate cut than in June that markets have currently predicted, in part because retail sales are faltering. Retail sales rose 0.6% in February from the previous month, according to Census Bureau data, but January retail sales previously posted a surprise -1.1% decrease. They have been trending downward since September 2023.
Retail inflation is largely due
to corporate greed, which is out of the Fed’s control.
So there are now voices saying
the Fed should pay less attention to its target rate of 2 percent and reduce
interest rates sooner. “Given that the labor market is tight, the economy is
running well and corporate fundamentals are looking pretty good, I’m not sure
we need 2% inflation,” said another economist in a MarketWatch interview.
The chorus for rate cuts will
grow louder as further weaknesses in retail sales appear in coming months.
Harlan Green © 2024
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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