Fact check: Are corporate profits at record highs because companies are 'overcharging?'
Erica Smith, a Democrat running for North Carolina's newly-drawn 2nd Congressional District seat, tweeted: "Corporate profit margins are at their highest point in 70 years. ... They're overcharging us for gas, medicine, and groceries, and pocketing the difference." PolitiFact NC checks her claim.Posted — Updated
A Democratic congressional candidate in North Carolina says corporations are making more money than they have in seven decades.
Former state Rep. Erica Smith is campaigning to represent North Carolina’s newly-drawn 2nd Congressional District. On Dec. 30, she tweeted:
“Corporate profit margins are at their highest point in 70 years. Corporations are trying to blame inflation on stimulus checks. Meanwhile, they’re overcharging us for gas, medicine, and groceries, and pocketing the difference. It’s a racket.”
Bloomberg created a chart showing the gap between wholesale gasoline and the price at the pump, on a rolling five-day average. Bloomberg’s data showed the gap rising from $1.18 per gallon in early August to $1.42 in late November.
Smith is certainly not the first Democrat to point the finger at corporations during the pandemic. Economists who spoke to PolitiFact NC said the first line of Smith’s tweet is generally accurate. However, some said her comments about companies “overcharging us for gas, medicine, and groceries” need additional context.
The price of gas, groceries and medicine
“I do not necessarily agree with the claim that the current record level of the profit margin shows that businesses are ‘overcharging us for gas, medicine, and groceries, and pocketing the difference,’” said Gary Burtless, an economist at the Brookings Institution.
Burtless said the Yardeni report shows that “the current high rate of profitability may be offsetting sharply lower profit rates the same companies experienced in the months in 2020, when the pandemic dramatically reduced the profitability of many companies’ operations.”
As for groceries, economists balked at the notion that local grocers are shaking down customers.
“Profit margins vary dramatically not only by industry, but by company,” said Scott Lincicome, a senior fellow in economic studies at the libertarian Cato Institute. Historically, grocery stories and gas stations have “notoriously low profit margins,” he said in a phone interview.
The cause of rising grocery prices is more a tale of supply and demand than of corporate greed, said Lincicome and Dean Baker, an economist and co-founder of the Center for Economic Policy and Research.
“The high prices are a pretty simple story that there is a big jump in demand and no corresponding increase in supply,” Baker told PolitiFact in an email.
“I don't see any special conspiracy story there,” he said. “I expect prices to moderate as demand falls back to some extent and supply increases.”
Smith said “Corporate profit margins are at their highest point in 70 years … they're overcharging us for gas, medicine, and groceries, and pocketing the difference.”
Government data show that Smith is right about the profit margins of companies in the U.S., collectively speaking.
Consumers in the U.S. tend to pay more for medicine than consumers in other countries. Oil companies are also making more money lately. However, economists say it’s misleading for Smith to suggest that your neighborhood grocery store or gas station is running what she described as “a racket.”
The statement is partially accurate but leaves out important details or takes things out of context. We rate it Half True.
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