Recovery or Inflation: How Do We Make Sense of Corporate Profits Rising in 2021

PopTika / shutterstock.com

We have to look at the facts. Corporate Profits Jumped by 25% in 2021. Are We Really Recovering or Is Inflation the Bigger Culprit?

With certain businessmen and Democrats proclaiming their pride in Biden’s latest jobless numbers, and the improving economy, they seem to see everything as a sign that we are in COVID recovery. It just doesn’t add up, though. Especially when you look at the profit matrix as well as the inflation rate at the same time.

When something seems just too good to be true, it usually is. So, when corporate profits are being listed as going up 25% in the last full year, after having lost ground in 2020 as the pandemic hit, it makes you wonder how it could happen. Since so much of the manufacturing is imported, and the raw materials as well, COVID interrupted those streams and made it incredibly difficult to get things done.

This, in turn, sent prices skyrocketing. Now, of course, that money had to come from somewhere, so they passed that cost along to the consumer, and inflation began to set in at a higher rate than in previous years. So, now, as companies are reporting these massive profits, we need to figure out how they are getting that number.

In the guidelines for reporting profits, there is no accounting for inflation, so these companies can and do report whatever they want to claim they made as profits. There is also nothing to justify what they are considering profit, as certain companies have been identified as overinflating numbers to build consumer and investor confidence so they can make up that difference once things get back to normal.

No matter what they do, these profits mean they could afford to pay workers more or to hire more people and make their expansion grow even faster. As a result, wages are, in fact, rising in many industries. However, overall, that raise is barely keeping pace with inflation. If wages aren’t keeping up with inflation, they aren’t really getting a raise. Rather, it is a cost-of-living adjustment, and quite frankly not a very good one at that.

The progressive left is touting these numbers as a sign that Biden and his plans are working. Even though when Trump was leading the country, we didn’t have a pandemic and poor leadership causing rapid inflation. It meant that the growth under his watch was legitimate and sustainable. The growth under Biden, on the other hand, is like a house built directly on the sand at the water’s edge – no foundation and nothing to support it.

Chief U.S. economist Rubeela Farooqi of High-Frequency Economics sent a note to clients saying “Our baseline remains that the economy will continue to expand this year, but the pace will moderate. We see downside risks from geopolitical events and China lockdowns.” This note makes a lot of sense given the current situation. What is being left out is the situation in Ukraine and how simple things like the grain crops from there and in Russia will ultimately impact the pricing of American food.

These grains are often used in cattle food and baked goods as well as beer. Since they cannot plant at just any time of year, and the spring planting season is hitting right about now, this conflict will greatly impact what we see for food in the coming months.

So when companies like General Mills and Pillsbury claim great profits, ask yourself if they really profited, or if inflation just made it look that way?