Corporations marking up prices didn't cause inflation: report

Corporations marking up prices did little to contribute to inflation, according to a new report by economists at the Bank of Canada (BoC).

Canadians have been feeling the pinch in the last few years, placing the blame on big companies like Loblaw for the soaring cost of living.

There has been no shortage of shoppers expressing their frustrations towards grocery chains for outrageous prices showing up in aisles for basic items.

Earlier this year, thousands of Canadians called for an investigation into Loblaw for “profiteering and greedflation.”

And as Canadians lose patients, they continue to call out the corporation in creative ways, especially following news that it made $508 million in the last three months.

But economists have concluded that these rising prices have barely contributed to inflation.

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In a new report by the BoC, researchers Panagiotis Bouras, Christian Bustamante, Xing Guo, and Jacob Short explored why inflation rose to levels not seen since the 1980s.

“In particular, the notion that firms exploited their market power to raise prices by more than their costs increased has been at the centre of this discussion,” reads the report.

This is also known as price markups. The economist used data provided by Statistics Canada to measure how much corporations marked up prices since the COVID-19 pandemic.

The report found that companies’ measured markups did grow after the onset of the pandemic.

“However, our results do not indicate that this markup growth was inflationary,” wrote the economists. “Most of the growth in markups occurred during 2020, a year characterized by low inflation.”

The report adds that markup growth began to decline in 2021 as inflation began to increase, suggesting that the changes in corporations marking up prices were “mild and decreasing.”

“Specifically, our estimates suggest that markup growth accounted for less than one-tenth of inflation in 2021,” the report says.

According to the economists, growth in price markups was near zero or negative by 2022, when inflation reached its highest levels.

Bank of Canada

“The fact that markup growth was not aligned with the dynamics of inflation indicates that the recent rise in inflation was driven primarily by changes in costs rather than by firms leveraging their market power to increase prices,” reads the report.

While corporations marking up prices may not have been a major aspect of inflation’s big year, the economists say it may have still contributed to the initial rise of inflation in 2021.

However, its contribution dissipated by the end of 2021 and “growth in marginal costs” was ultimately the force that skyrocketed inflation.

Even with this research, there’s no doubt Canadians will continue to show their disdain for these big corporations as the country becomes even less affordable.