Sally Reed
President Biden’s State of the Union address on Thursday comes as many Americans feel the sting of ongoing inflation. With prices high and corporations reaping record profits, the President plans to aim for “corporate greed” and price gouging.
Recent tone-deaf comments from CEOs like Kellogg’s and Wendy’s, who’ve seen profits climb amid rising consumer costs, have made them ripe targets.
Rising Costs of Living
The rising cost of living, especially for essentials like food and shelter, has been a source of economic hardship for many Americans.
Housing costs have also accelerated, with rent increasing over 5% nationwide. For those on fixed incomes or tight budgets, higher prices for necessities significantly reduce available funds for other expenses.
Slowing Growth in Jobs and Wages
While job growth has remained steady, wage growth has failed to keep up with rising prices. Average hourly earnings increased only 3.4% over the last year, meaning that inflation-adjusted wages have declined for most workers.
Slower wage growth and higher living costs have strained household budgets and consumer confidence.
Impact on Consumer Spending and Economic Growth
Rising inflation and flat wage growth threaten consumer spending, which makes up about 70% of U.S. economic activity.
When higher prices squeeze household budgets, consumers spend less on discretionary items like dining out, entertainment, and travel.
The Fed’s Dilemma
The Federal Reserve faces a difficult balancing act. Raising interest rates can help curb inflationary pressures but risks slowing economic growth if done too aggressively.
However, if the Fed does not tighten monetary policy enough, high inflation may become entrenched in the economy. The Fed raised rates several times in 2022 and has signaled further increases in 2024.
Price Gouging and Record Profits
President Biden has leaned into public anger over rising prices and singled out corporations for criticism.
In a December speech, Biden asserted that “any corporation that has not brought their prices back down – even as inflation has come down, even [as] supply chains have been rebuilt – it’s time to stop the price gouging.”
Profits Skyrocket Amid Inflation
Major companies have seen profits skyrocket even as they raise prices, making CEOs appealing targets. For example, Kellogg’s boosted its profit outlook last year while increasing cereal prices 28% over four years.
Comments like CEO Gary Pilnick’s suggestion that families buy more cereal amid high food prices have provoked outrage.
Digital Menu Boards and ‘Surge Pricing‘
Fast food chains have frustrated customers with price hikes, though revenue has remained strong. Wendy’s plans to test ‘dynamic pricing’ using digital menu boards, which some saw as a form of ‘surge pricing’ where prices rise during peak demand.
Wendy’s later clarified it may lower, not raise, prices at busy times, but the damage was done. There are concerns that some companies are using inflation as an excuse to pad profits through price gouging.
Limited Options
Biden has limited means to curb corporate greed or lower consumer prices directly. However, in his upcoming State of the Union address, Biden reportedly plans to emphasize the role of “corporate greed” in sustaining high prices.
Calling out specific companies and practices may be one way to apply political pressure, even if new policy interventions are unlikely. Some argue that the government should do more to encourage competition and limit monopolistic practices that disadvantage consumers and workers.
Biden’s Message To Support a Stable Economy Faces Headwinds
Biden’s message on the economy faces considerable headwinds, including Americans’ entrenched view that only steep price drops can curb inflation.
However, focusing public ire on corporations profiting from the crisis could resonate and support the administration’s argument that the overall economy remains strong.
Grocery Costs Leveling Out, but Food Prices Still High
Grocery store prices have started to stabilize as supply chain issues are resolved; however, the cost of food, in general, remains elevated.
While price growth has slowed from its peak, food-at-home costs are still outpacing overall inflation. Some economists expect grocery inflation to continue moderating over the next year, but prices will unlikely return to pre-pandemic levels soon.
Fast Food Chains Note Slowing Sales Growth
Fast food restaurants have also noted a slowdown in sales growth, which executives have partially attributed to menu price inflation. Major chains, including McDonald’s and Wendy’s, have pledged to aim for more affordable options to win back budget-conscious customers.
However, companies have reported that slower sales have not significantly impacted profits. In an earnings call last month, McDonald’s CEO Chris Kempczinski said that the company’s margins remain “healthy” despite a 1.9% drop in U.S. same-store sales.
Excessive Executive Compensation
There are many examples of corporate executives receiving lavish compensation and bonuses while average workers struggle. Kellogg’s CEO Gary Pilnick suggested budget-conscious shoppers turn to the cereal aisle, stating, “Our value brands are very affordable.”
However, Pilnick earns $1 million annually in salary alone and up to $4.4 million in potential bonuses. Kellogg’s profits have also increased, with cereal prices rising 28% over 4 years.
Windfall Profits Amid Suffering
Some companies have significantly benefited from circumstances that caused widespread hardship. For example, certain pharmaceutical companies saw stock prices and profits surge due to the COVID-19 pandemic.
While millions suffered health issues, job losses, and economic difficulties, select corporations made windfall profits.
Policy Proposals To Curb Corporate Greed
While the President has limited direct control over the policies of private companies, he could propose new rules aimed at curbing corporate profiteering.
For instance, Biden might suggest taxing excessive CEO pay or restricting stock buybacks. He could also push for new laws requiring more transparency in how companies set prices.
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