Eleanor Mantine grocery shopping at the Lorenzo supermarket in North Miami, Florida in 2008.Joe Riddell / Getty Images
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In June, for the first time in history, the average price of gas in the United States exceeded $ 5. This dismal enterprise has wreaked havoc on family budgets, and not just because car owners are now forced to pay more to travel than ever. High gas prices affect everyone, regardless of driving habits, because they have caused companies that produce goods to inflate their prices to cover high transportation and transportation costs and pass on high expenses to their customers.
The first factor is the increase in crude oil prices. It’s an essential component of the gas we use to power cars, and its price skyrocketed during the pandemic. In early 2020, oil prices dropped dramatically as blockages cut travel and energy consumption. These prices have steadily risen as the world opens up and people go back to the office and travel.
But oil companies have been reluctant to produce more oil to meet demand, fearing it would lower the price and therefore their profits. They keep prices artificially high to reward executives and shareholders. As a result, gas prices are rising.
Between April and June of this year, for example, the revenue of ExxonMobil, the largest gas producer in the United States, was $ 115.68 billion, up from $ 67.74 billion in the same quarter. for 2021. The company also posted an “unprecedented” profit of $ 17.85 billion. Chevron, another gas producer, posted record profits of $ 11.62 billion.
The Russian invasion of Ukraine is another culprit behind the high gas prices. Although the United States doesn’t import much of its oil from Russia, other countries, particularly Europe, were heavily dependent on Russian oil before the country launched the war against Ukraine in February. Europe and other countries have now imposed sanctions to ban the import of Russian oil in an effort to weaken the country and stop its war. The result, therefore, is that the global supply of oil available to all countries has decreased, driving prices up everywhere, including the United States.
The CPI report shows that dairy products increased by 14.9% compared to last July and fruit and vegetables increased by 9.3%. If you want a croissant or some Frosted Flakes, prepare for the fork (or spoon) with some cash – cereals and baked goods are up 15%.
The Ukraine-Russia conflict plays an important role in rising food prices. Together, the two countries are usually responsible for more than half of the world’s vegetable oil exports and more than a third of the world’s grain supply, but exports have steadily declined due to the war. Sanctions against Russia have also hit the supply chain, collectively culminating in soaring food prices around the world.
In addition, Brazil produces at least four-fifths of the world’s orange juice and one-third of soybeans, sugar and coffee under normal climatic conditions. The past few years have been anything but: last year, the southern region of the country faced the worst drought in a century, while the north saw an increase in disease due to torrential rains. These weather conditions have consequences. Between April 2020 and December 2021, the global price of soybeans increased by more than 50%, while coffee beans increased by more than 70%, according to February. New York times Analytics.
If climate and war are causing inflation, companies themselves could also be part of the problem. Prices of meat, poultry and eggs have increased by 10.9% since July 2021. Like other sectors, meat producers have also faced difficulties in the supply chain and employment, but there is also evidence that some are increasing prices well above their higher costs. Tyson, one of the largest meat processors in the world, estimated in the second quarter of 2022 that it responded to the $ 1.5 billion increase in operating costs by raising prices by about $ 2 billion. Tyson’s 12-month gross margin is 15.6%, according to market research platform Finbox, while the average gross margin for fiscal years 2017-2021 is 13.4%.
The grocery stores themselves have fairly low profit margins despite the label shock they face at the checkout.
The 12-month average gross margin for Kroger, which also owns the King Soopers and Harris Teeter grocery chains, is 22.4%, just below the average gross margin of 22.8% between fiscal years ending February. 2018 to 2022..
The cost of electricity rose more than 15% from the same period last year, according to the Bureau of Labor Statistics.
This increase is almost entirely due to rising gas prices, because the gas is used to power the turbines that generate 38% of America’s electricity. So your electric bill is higher for some of the same reasons that driving your car is more expensive. Double hit on inflation!
And like their cousins in the gas industry, electricity suppliers are also making record profits. The Pacific Gas & Electric Company of California, the largest electric utility in the United States, generated $ 4.16 billion in revenue from its electric operations between January and March 2022, an increase of approximately 25% over the same. 2021 timeframe. Overall, the company generated a profit of $ 475 million, nearly three times what it earned the previous year.
Airline prices don’t seem to be any higher because you’ve forgotten how much they cost during the pandemic lockdowns – flights have already hit record highs. In one year, the price of air travel had increased by more than 50%.
Thanks to rising oil and gas costs, the price of jet fuel has risen nearly 150 percent in the past year. The airlines have passed on this additional cost to their customers.
The situation is exacerbated by the fact that travel demand has increased more than two years after the Covid pandemic, but seat capacity on the plane is still 17% lower than pre-pandemic levels. This is partly due to the fact that airlines are still scrambling to hire enough cabin crew and pilots after many were laid off or acquired deals when many travel was cut off at the height of the pandemic.
Panic restaurants at the checkout you feel. Year-on-year, restaurant takeaways rose 7.6%, according to the latest report on the Consumer Price Index. The profit margins of some of the larger restaurant groups do not indicate that restaurants are taking advantage of economic conditions to raise prices beyond the amount needed to keep pace with inflation.
Many restaurants are still pulling themselves out of the blush from the pandemic lockdown months in 2020, while also battling a nationwide labor shortage and much higher prices for essential products, from cooking oil and eggs to take-out containers and to wine glasses.
There isn’t much evidence to suggest that restaurant groups are rigging prices.
For example, Darden restaurants – the group behind national chains like Olive Garden, Longhorn Steakhouse and others – saw their gross margin drop from less than 24% over the three-month period ending May 2021 to nearly 21% over the same period. . period this year, according to Finbox.
New cars cost 10% more than a year ago.
The scarcity of a major part has been exacerbated by the global supply chain and trade policies initiated by Donald Trump when he was president.
Last fall, the number of new cars available in the United States dropped 75% from pre-pandemic levels. This is because automakers have had to produce fewer cars due to a severe shortage of semiconductor chips used in vehicles.
These computer chips are still in short supply and will likely arrive in 2023. During the pandemic, demand for all kinds of devices using these chips, from computers to smartphones, has soared as people are stuck at home relying on the Internet for entertainment, work and human communication. Nor do trade policies help this shortage: Trump has imposed new tariffs on chips and computer parts imported into the United States from China, making the process of acquiring these chips more expensive for automakers.
The shortage is so severe that some automakers earn less because they are unable to produce and sell enough cars: between April and June of this year, GM experienced a 39% drop in profits compared to the same period last year. .
The June CPI report showed a 5.8 percent increase in primary housing units for rent, the fastest year-over-year increase since 1986. The July CPI figure was even higher than last month, at 6, 3 percent.
While house prices are falling – the average selling price of new homes fell 12% between April and June 2022 – rental costs remain high for several reasons: buying a home remains elusive for many renters, especially with mortgage rates rising due to inflation. This increases the demand for rents. In addition, some landlords are trying to compensate for the losses suffered during the pandemic, when people have left expensive urban areas en masse to work remotely or have not paid their rent in full.
This does not mean that residential companies are fueling a fortune in profits. According to one of the companies, Mid-America Apartments, one of the nation’s largest rental companies, increased their rent by an average of 18% for new residents and by 16.5% for renewal contracts in effect during the second. quarter of 2022 compared to previous leases. earnings release. But the rental company’s profit margins have remained fairly flat over time: 12-month gross margin is 60.1%, according to Finbox, versus an average of 59.1% between fiscal years 2017-2021.
But in any case, rising rents have a huge impact on headline inflation. Excluding the volatile categories of food and energy, year-on-year inflation was 5.9%, with shelter providing 40% of that overall increase.
Rents are expected to rise again. “SNot reached the climax. They will continue to rise in the coming months, Sweet says, and that could keep inflation high in the future.
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