Companies Push Prices To Protect Profits But Raise Inflation, Too

The prices of oil, transportation, food ingredients and other raw materials have fallen in recent months as the shocks stemming from the pandemic and the war in Ukraine have faded.

Photo Insert: PepsiCo has become a prime example of how big companies have countered increased costs.

Yet, many big businesses have continued raising prices at a rapid clip, Talmon Joseph Smith and Joe Rennison reported for the New York Times.

Some of the world’s biggest companies have said they do not plan to change course and will continue increasing prices or keep them at elevated levels for the foreseeable future. That strategy has cushioned corporate profits. And it could keep inflation robust, contributing to the very pressures used to justify surging prices.

“Companies are not just maintaining margins, not just passing on cost increases, they have used it as a cover to expand margins,” Albert Edwards, a global strategist at Société Générale, said, referring to profit margins, a measure of how much businesses earn from every dollar of sales.

PepsiCo has become a prime example of how big companies have countered increased costs. Hugh Johnston, the company’s chief financial officer, said in February that PepsiCo had raised its prices by enough to buffer cost pressures in 2023.

The average company in the S&P 500 stock index increased its net profit margin from the end of last year, according to FactSet, a data and research firm, countering the expectations of Wall Street analysts that profit margins would decline slightly.

And although margins are below their peak in 2021, analysts are forecasting that they will keep expanding in the second half of the year.

For much of the past two years, most companies “had a perfectly good excuse to go ahead and raise prices,” said Samuel Rines, an economist and the managing director of Corbu, a research firm that serves hedge funds and other investors.

“Everybody knew that the war in Ukraine was inflationary, that grain prices were going up, blah, blah, blah. And they just took advantage of that.”

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