HOW COMPANIES PROFIT OFF INFLATION

These days we're all experiencing the effects of inflation, with soaring prices of food, consumer products, oil with other necessary commodities and ever increasing costs. Each day it just seems like the prices will just keep going up. Today, inflation is record high and it has taken a huge toll on our personal savings, investments and even our personal spending habits as many households are forced to cut spending and people are now incentivized to invest more money rather than just saving or spending it. With this, people have started to adjust to the new reality of high inflation and high prices with some financial experts saying that the inflation rate will only start to reduce and eventually normalize by next year. Even with this reality, many people like you are still questioning the reason why all of this is happening. The skyrocketing prices and high costs that are draining people's pockets or the record inflation that have rendered many people's years of savings and investments almost worthless, surely there is a reasonable explanation to all of this and yes there is.

WHY IS ALL THIS HAPPENING

A big reason that has accounted for inflation is consumer spending. In 2020, during the height of the Covid-19 pandemic, consumer spending on goods and consumer products was low and it was in tandem with supply but after the pandemic and the world was recovering from the crisis, consumer spending on goods increased, this action put more strain on the supply chain such that the supply of goods could not meet demand thereby resulting in price increase.

Another major reason for record inflation is oil production. OPEC, an organization that controls most of the world's oil production decided to reduce oil production and as a result of this led to the increase in oil prices and the subsequent increase in other commodities and services that depend on oil.

The Russia-Ukraine war is also to blame for the high inflation today as the war has led to disruptions in global supply of important commodities like oil and fertilizer, these commodities are used in many other products and this leads to the increase in the cost of production of many of these products thereby resulting in high inflation.

THE IRONY OF THIS INFLATION

When we think of inflation, we often think of high cost of living for most people, high cost of production for many businesses and companies, some managing to stay afloat while some out of business with some companies declaring bankruptcy altogether due to them sustaining high losses and zero profit margins. This trend is very common during inflation, a survival of the fittest where only the biggest and the most powerful companies managing to survive the crisis. But this is not quite the same story as a few other companies that instead of managing to stay afloat, they are making record profits. Although it is easy to say that they have very good and highly profitable business models or they are just outright lucky enough to still be profitable even with this high inflation. This is still normal and understandable but the problem is how they are able to be making huge profit margins during inflation even with higher cost of production and supply shortages. Surely there must be another way they are able to make make money.

You see, these are not just ordinary companies, these are giant corporations and conglomerates that are powerful enough to control and monopolize their entire respective sectors of the global economy, these powerful corporations use this to their advantage and control the price of their products and this is known as price Price fixing. Although this is fairly common and this is how companies are able to remain profitable even with high inflation but this is at the expense of consumers and other small businesses that are hugely affected by these actions. This is the irony of inflation as the people are struggling to meet up with the high costs and higher losses, a few minority are able to profit more at the expense of everyone. However, price fixing is not the only way these corporations are to make money with inflation.

HOW THEY PROFIT OFF INFLATION

We all know that inflation is not good for consumers as it leads to increased prices and less purchasing power but the thing is, inflation has even worse effects on business and corporations. It reduces demand for their product or service thereby increasing losses and the worst part, inflation eats up profit margins with even big businesses forced to cut costs and vital expenses to stay afloat. Obviously, companies don't like this so they have found a way to make more profits that neutralizes the effects of inflation. This is known as Price Gouging and it happens when companies raise their prices to unhealthy levels for consumers to increase profits. This in on itself is not necessarily a bad practice as we all know that companies usually overprice certain products as a result of a rapid surge in demand or hype on their products but the problem is that in recent years, this practice has been hugely exploited by some companies to increase their profit margins especially during times of crises and recession. This way, they are able to pass down their costs from inflation to innocent consumers who are also struggling with their increasing costs. This action only worsens the effect of inflation on consumers so this practice is very evil in fact, it is very much illegal in many countries but thanks to countless lobbying efforts by some big corporations, they are able to keep exploiting their consumers with little or no punishment for it.

As scary or a bit far fetched as it seems, the truth is that this is the reality of things. Most of sky rocketing prices of various basic commodities and essential products we use on a daily basis are a result of price gouging and we consumers can't really do much about it

WHAT CAN WE DO ABOUT THIS

Like I said before, we can't really do much about this but this doesn't mean that we can't do anything about it.

The most likely approach to this is to boycott their products and settle for more cheaper and cost effective alternatives. This isn't a really an easy and efficient approach as most companies generally tend to increase prices unilaterally so this isn't a really viable option. The only effective way to combat this practice by corporations is through regulations. Most companies are required to update their investors on their amount of sales and profits at least every quarter and this is also audited by a third party organization to verify their financial statements and balance sheets this is the process of regulation of this big corporations and it is fairly effective in reducing price gouging but most of these corporations are able to bypass the regulations through many lobbying efforts and legal loopholes.

Even with regulations, price gouging remains ever present in our society because these some of these corporations have proven to be even more powerful than the system, the financial system by which the world works. We can only adjust to the reality that we are constantly being exploited by these corporations for profits and because of this we just have to stick with this high prices.