PRESS RELEASE | Inflation : Canadian corporations rake in record profits

Montréal, August 11, 2022 – Despite rising inflation, Canadian corporations are reporting record profits, to levels unseen since the early 2000s. These findings appear in two briefs released today by the Institut de recherche et d’informations socioéconomiques (IRIS). By raising interest rates to slow economic activity, the Bank of Canada protects the financial sector while putting pressure on Canadian households to carry the fight against inflation. The current inflationary bout should be taken as yet another sign that we need to accelerate the energy transition, fight the unproductive concentration of wealth and lower certain regressive prices. 

Corporations posting record profits 

The profits of Canadian corporations went up by more than 10% over the past four quarters, or $91 billion in additional net profits. According to Guillaume Hébert, IRIS researcher and co-author of the briefs, “unlike households, whose salaries have stagnated, corporations seem to have taken advantage of the inflation to increase their prices. This move has allowed them to rake in record profits while also pushing inflation rates up.”

Protecting household revenues: An equitable approach to combatting inflation 

In response to price increases, the government should act to protect the purchasing power of households. The Institut proposes several measures that the government could adopt. Pierre-Antoine Harvey, associate researcher at IRIS and co-author of the briefs, believes that “increasing wages to match inflation is the most effective measure to counter the problems caused by the overall increase in prices.” Some worry that increasing wages will trigger a wage-price spiral, in turn leading to higher inflation in the long term. However, cost-of-living adjustments to wages have no long-lasting amplifying effect on inflation.

Governments could offset overall inflation by lowering the rates and prices under their control (e.g., hydroelectricity rates or child care fees). They could also help municipal governments implement free public transit in their territory. In addition, according to Guillaume Hébert, “measures should be taken to limit corporations’ ability to raise their prices excessively, such as increasing industry oversight and fighting price-fixing.” 

The Bank of Canada is on the wrong track

Looking at the factors contributing to the overall increase in prices, it is clear that direct energy expenses represent more than 52% of excess annual inflation since the beginning of the pandemic. Furthermore, corporate profits (10% annual growth) have risen much faster than wages (3.1% growth) and have contributed substantially to the current inflation rate.

Pierre-Antoine Harvey has concluded that “increasing the policy rate won’t have a direct effect on soaring oil prices or on large corporations’ hunger for high profits. The Bank of Canada’s current strategy does not address the fundamental causes of inflation and could even be counterproductive if it slows the economy down. Workers will pay the price for this approach. The unemployment that would follow a decline in economic activity would be catastrophic for Canadian households.”  

You can read the briefs at: https://bit.ly/inflation-IRIS.