There is little sign of US companies cutting back on profits after Powell says it could cool inflation

NEW YORK, March 9 (Reuters) – Federal Reserve Chairman Jerome Powell said this week that inflation could fall if companies cap profits – but the largest US retailers and consumer products companies have a key measure of profitability reported, which has hardly decreased in recent years.

Gross profit margins, which are closely watched by investors and measure profit as a percentage of sales, have remained flat or slightly lower among manufacturers and sellers of household items such as toilet paper and breakfast cereals.

Companies such as Tide maker Procter & Gamble Co (PG.N) and Walmart Inc (WMT.N) have gone through price hikes every once in a while to try to keep this measure of financial health stable while heading for the sky-high costs .

But Powell this week took aim at Corporate America, saying that if companies and shareholders took less for themselves, inflation could fall and workers’ wages could continue to rise.

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Procter & Gamble’s profit margins rose during the pandemic and fell slightly last year. Walmart’s margins have followed a similar pattern as it tries to keep prices low for consumers and retain traffic to its stores.

Kroger Co (KR.N) margins also surged during the pandemic as food prices soared.

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P&G, Kroger and Walmart did not immediately return requests for comment.

P&G executives said at an industry conference last month that as inflation continues, it will become more difficult to raise prices.

Executives at Walmart said last month that inflation in food and consumer goods is continuing, with food inflation higher than they thought it would be.

U.S. lawmakers such as Senator Elizabeth Warren and Representative David Cicilline have held companies accountable for price hikes on items customers buy every day.

The situation is not unique to the United States, with data shared during a recent European Central Bank retreat showing that companies there are benefiting from high inflation.

“Corporate profits and higher margins have been a major driver of inflation, and if they start to ease, we will see lower prices in real life,” said Rakeen Mabud, chief economist at progressive advocacy group Groundwork Collaborative. “What goes up works down. If we see margins shrink, companies bring prices down, we see lower inflation.”

Some household goods manufacturers are easing price hikes. Ketchup maker Kraft Heinz Co, (KHC.O) Clorox Co (CLX.N) and PepsiCo Inc (PEP.O) have indicated they are waiting for further price increases.

Clorox declined to comment, while Kraft Heinz and Pepsico did not immediately respond to a request for comment.

P&G and Stouffer’s frozen meal maker Nestle SA (NESN.S) have said they plan to keep raising prices even as shoppers buy less and their budgets constrained. Nestle did not immediately respond to a request for comment.

Former Federal Reserve Vice Chairman Lael Brainard said in the fall that retail margins — a measure of the price chains charged for a product compared to what they paid for it — have risen “significantly more” than wages for the typical shop assistant.

Cutting those margins could help ease inflationary pressures in consumer goods, she said.

Reporting by Jessica DiNapoli in New York; Edited by Lincoln Feast.

Our Standards: The Thomson Reuters Principles of Trust.

Jessica DiNapoli

Thomson Reuters

New York-based reporter covering American consumer products and the companies that make them, and the role they play in the economy. Previously reported on boards of directors and distressed companies. Her work has included compelling stories about CEO compensation, Wall Street bubbles, and retail bankruptcies. Signal App: 845-591-4428

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