Do not pass go. Do not collect $200. In fact, why don't you go ahead and give Mr. Monopoly all your money?
Rising corporate concentration — when only a few major companies dominate an entire industry — is worsening inflation, according to economists at the Federal Reserve Bank of Boston.
In a new report, the agency finds that when production suddenly gets more expensive for companies, they often pass those costs onto consumers in the form of higher prices. When industries are more concentrated and there's less competition, however, that price hike becomes about 25 percentage points greater.
In other words, monopolies don’t necessarily cause inflation. But since they tend to overcompensate for rising production costs by quickly jacking up their prices, they can exacerbate the problem. The report didn't point fingers at any specific industry, but in recent years, the oil and meatpacking industries, to name two, are among those most frequently cited as being dominated by a handful of conglomerates — to the detriment of consumers.
The authors of the Boston Fed report, a regional arm of the U.S. Federal Reserve (currently tasked with taming inflation), use data that spans from 2005 to 2018. Since then, competition among U.S. businesses has only declined, making their estimate a conservative one.
“The US economy is at least 50 percent more concentrated today than it was in 2005,” the economists wrote.
Price hikes don’t last forever. Historically speaking, prices usually stabilize after about a year, the Boston Fed found.
Still, these are unusual times. In March, U.S. inflation rose 8.5% compared to the previous year, a level unseen since the 1980s. As the global economy emerges from the pandemic, inflation is plaguing many advanced economies, though there's an open debate about why it's hitting the U.S. particularly hard.
Progressive lawmakers like Massachusetts Senator Elizabeth Warren have pointed to record profits in industries where inflation rates are particularly high as an obvious impetus. (Conservatives have roundly criticized this notion).
Take the oil industry, for example. In the U.S., drivers are paying about $4.60 a gallon on average — an all-time high, according to the automotive club AAA. The latest Labor Department data shows oil prices have surged more than 80% since last spring. Over that same period of time, gasoline prices spiked nearly 44%.
Meanwhile, oil conglomerate Shell posted a record $9.1 billion profit from January to March, and BP reported its most profitable quarter in a decade. While Russia’s invasion of Ukraine no doubt mucked with global oil supply, politicians like Warren say corporations are taking advantage of the situation.
Now there's data from our central banking system backing them up.
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