By Dean Baker Center for Economic and Policy Research I’m really wondering after the network ran the second piece in three days blaming a weak economy for the fact that restaurants can’t sustain their inflated pandemic profit margins. The basic story here is that many restaurant chains took advantage of the supply chain crisis to increase their profit margins. To be clear, this means that they raised their prices by more than their costs. This is what University of Massachusetts economist Isabella Weber called “sellers’ inflation.” More commonly it is known as “greedflation.” We can argue over the exact mechanism, but the basic point is pretty clear in the data. The profit share of national income increased at the expense of wages. In
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Angry Bear considers the following as important: Profit Margins, US EConomics
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by Dean Baker
Center for Economic and Policy Research
I’m really wondering after the network ran the second piece in three days blaming a weak economy for the fact that restaurants can’t sustain their inflated pandemic profit margins. The basic story here is that many restaurant chains took advantage of the supply chain crisis to increase their profit margins.
To be clear, this means that they raised their prices by more than their costs. This is what University of Massachusetts economist Isabella Weber called “sellers’ inflation.” More commonly it is known as “greedflation.”
We can argue over the exact mechanism, but the basic point is pretty clear in the data. The profit share of national income increased at the expense of wages.
In the case of the restaurant sector, after seeing a big jump in profits in the pandemic, many of the big chains now appear to be losing customers and are feeling pressure to cut prices. Rather than presenting this as a positive development, NPR is presenting it as evidence of a weak economy where consumers can no longer afford to eat out.
Their piece on Thursday presented this as a widespread problem. In addition to McDonald’s, which it discussed in a piece on Monday, it also talked about Starbucks, Dennys, and a number of other chains, all of which are apparently seeing a drop in sales.
As noted in my earlier piece, profits at McDonald’s are up more than 30 percent since the pandemic. Starbucks profits have risen from $18.4 billion in the four quarters ending in fourth quarter of 2019 to $25.2 billion in the most recent twelve months, a 37 percent increase. Cumulative inflation over this period was just over 20 percent.
These chains would be happy to keep their profit margins, but apparently the conditions of competition are preventing them from doing so and now they are lowering their prices. Most people would probably view this as a positive story. It means lower prices for consumers or at least lower inflation.
Incredibly, NPR literally never mentioned profit margins in either piece. It presented this news as a bad economy story where people no longer have the money to eat out.
It seems that no matter what the economy does, much of the media is determined to present a bad economy story. That is pretty incredible when we just had the longest stretch of low unemployment in 70 years and real wages are rising at a healthy pace, in spite of the disruptions created by the pandemic and Russia’s invasion of Ukraine.
More on pricing tomorrow.