Are Price-Gouging Consumer Giants to Blame for High Inflation?

to political argument and then back to crisis again. We thought Mario drug might be the one to break the cycle when he became Prime Minister just over a year ago, but he may now be heading for a cushier job as Italy's President, in which case Italy may be heading back to crisis and the whole cycle beginning again. Our economy reporter in Rome, Alessandra Amliaccio, will tell you everything that's happening and why it matters in just a few minutes.

But first I wanted to talk about price gouging, inflation and the Biden Administration's plans to cut the price of a stake voters don't like. Inflation highest in forty years, now, and President Biden doesn't like to be seen to be doing nothing about it. He also came into office promising to be more active in breaking up monopolies boosting competition.

In a few minutes, I'll talk to a distinguished former antitrust official, Bill beat about how these two political desires have come together in the administration's decision to pick a fight with America's meat packers, and what the president's new approach to competition might mean for the likes of Amazon and Facebook. But first, a brief introduction to the story from our U S Economy editor Molly Smith. In a

butcher shop in New Jersey. Uh and I'm afraid that these you know, these inflation prices are going to stay. It seems like it's a little bit of greed on their part, knowing the whole situation, and they have a good excuse right now to keep the prices at that

high market. That was Anthony Chiampa, owner of A and A Fine Foods in Lincoln Park, New Jersey, and he's dealing with runaway inflation in the price of meat in his shop, with some prices for cuts going for now nineteen or twenty dollars a pound up from just nine or ten last summer. His vendor said it was COVID related, as some plants were backlogged on production from being shut down for a long period of time. But Chiampa has

another explanation. I sure feel that there's no need for it, but unfortunately it's you know, these big companies that are you know, dictating the pricing right. That's also what many in the Biden administration think, and they're vowing to take on food giants and force them to cut their prices. There's economics and politics at work here. Inflation is hurting President Biden's popularity, and the administration needs to show it's

doing something to bring it down. Consumer prices in the US rose seven per cent in the fastest calendar ar increase in thirty nine years. It's not just at the grocery store. You've probably noticed it at the gas station as well, your energy bill or trying to buy a car. Economists largely agree this was brought on by supply demand and balances in the pandemic. Massive stimulus from governments and central banks fuel demand, while lockdowns and COVID outbreaks limited

supplies of materials and labor. Many expect these dueling forces will ease up this year as supply chains get back in order and Americans spend down their pandemic savings, But dominant companies could contribute even more to the Consumer Price

Index or cp I going forward. That's what Jeffrey Melly has to say, the Global head of Research at Barclay's, an author of a recent report on the impact of COVID nineteen on market power, generalized inflation as a starting point now because of supply chain distructions, but some companies can take advantage of that by raising their prices, and then that needs into CPI. But then that means there's more generalized inflation than so companies of market power have

even more air cover and even more profits. Tyson Foods and JBS, some of the biggest meat processors in the country, each reported gross profit margins of around in the fourth quarter, some of the highest ever. In fact, the Biden administration is keeping a close eye on the meat packing industry,

or just a handful of companies control the market. Then there's Coke and Pepsi, who announced price increases within days of each other in July and meet around three billion dollars in operating profits three months later at or near records. Some economists and the Biden Emit illustration argue that if companies were raising prices just enough to cover costs, those

profit margins would be flat. In response, the meat packers say that labor shortages and strong demand are to plaim for higher costs, while a Coke representative said the company adjust its pricing to balance quote premiumization and affordability. But if you listen to recent calls that executives have had with investors, you'll find quite a few talking about their newfound pricing power. Here's Norwegian Cruise Line CEO Frank del

Rio on an earnings call in November. Yes, we have inflation pressures on some online on in fuel, commodities, food, but we've got that pricing power that is translating into high yield. So we we believe that in late twenty two three forward our margins should improve. And here's Mark Klaus, CEO of Campbell's Soup at an investor or day last month. And it's really about the full impact of our pricing, which we do very much believe we have the pricing

power to address inflation. The Federal Reserve hopes to check these price increases by raising interest rates this year. Meanwhile, Biden has staffed antitrust agencies with regulators who are committed to cracking down on big business. Lena Khan, who chairs the Federal Trade Commission, said last week that she intends to act with a quote fierce sense of urgency to

police competition in the economy. She'll have to balance that with all the good things that come from big businesses, namely the efficiencies and economies of scale that actually keep prices down. In the end, both approaches present challenges, according to Yanda Loger, a professor at ku love In in Belgium, and it's it's not that by sort of breaking up these companies or or suddenly regulating them that you're going to solve things as well, right, because that may actually

create harm for consumers down the road as well. Chiamba, the butcher shop owner, isn't holding his breath for prices to come down. His vendors are saying it will be another six to eight months before they can hopefully catch up with production, and then if they have a lot of product that's not selling due to the price that's so high to the consumer, then they'll back off and then I'll have more products and then I'll have to bring that prices down, So that eventually will happen, I hope,

but I don't see it for the near future. For Bloomberg News, I'm Molly Smith. Well, Molly has set us up nicely, I think, for a conversation about pricing power and what the administration could or should do about it with Bill Bear, now a visiting fellow at the Brookings Institution, but previously I think the only person to have led antitrust enforcement at both of the U S antitrust agencies. So he was Assistant Attorney General in charge of antitrust

for the Department of Justice sixteen. But he also served as a director at the Bureau of Competition at the Federal Trade Commission in the late nineties. So Bill, thank you very much for joining us. We should start with the subject of the day, meat packing. Is there a serious competition problem that for the administration to fix? Definitely, no doubt there is a serious problem here. We have in beef and pork and poultry processing unprecedented concentration. In

beef they're just four players, and poultry there five. In pork there are just four, and that gives the meat packers enormous power both in dealing with the producers of the livestock but also downstream in terms of setting prices for the average consumer. There is a problem. Okay, there's a problem, but how might be trickier? How should the

administration go about addressing this? There are a couple of things that can be done, and the administration is working with them under the packers and stockyards and the Department of Agriculture has regulatory authority and have some ability to force the packers too and the stockyards to uh deal

more fairly with the livestock producers. And in addition, what the Biden administration is doing is providing funding to the farm agri culture for alternatives packers to develop alternative methods for livestock producers, the people who produced the cattle of the chicken that go through these stock cared alternative sources more competition, so there is more opportunity for the producer to get a fair share, and then more competition in

terms of setting price downstream. They are devoting uh some hundreds of millions of dollars two funding alternative middlemen and provide more competition in a sector that I think most

people believe is way too concentrate. If if these companies are just making meat too expensive, especially now when we have a lot of people are being encouraged to eat less meat anyway, and there are plenty of alternatives to meet, why is this not something that will get resolved on its own in the sense of prices go too high,

consumers are just not going to buy. Well, it's there is some ability, I suppose for consumer demand to move away from meat, but at the same time, a lot of consumers, um, that's what they want, that's what they're going to buy, that's what they're used to. The demand is somewhat anelastic for these products, which gives a concentrated market with very few sellers the ability to extort prices

that are higher than its competitive market would provide. In a way, the complaint about the meat packing is quite a traditional approach to antitrust that you judge by whether or not you think prices are too expensive and consumers are not being served because prices are expensive. But one of the things that seems to have changed in this administration is that we're not just thinking about the price

for consumers. We might be worried about a company being really big even if it's offering all its things for free, Facebook, for example, which often comes up in these conversations, would you welcome the idea that the administration is now quite focused on size, actually is caring about the size of a company even if all its consumers seem to love its products and use it a great deal, and that's one of the reasons why it's so big. I guess Amazon is another classic example. Yeah, I think it is

a legitimate focus. You have any trust lawsuits depending right now involving Facebook and involving Amazon. There are rumors of possible lawsuits against against Apple, UH and UM and others, and I think those lawsuits are focused on the fact that once you get to a certain size, you have tremendous market power, tremendous ability to limit the opportunity of rivals to grow up to compete with a Facebook or

to compete with the Amazon. The case the FTC brought against Facebook involves Facebook's tact man strategy where they gobble up at anybody who looks like they could be a competitive threat. And the documents that have come out in that litigation and congressional hearings, so that was a very deliberate strategy from from the top. Let's not let Instagram

or what's app go any further. Let's catch them and they can then catch them and make them part of their off ing where they can catch them and kill them. And that is a legitimate anti trust worry, and it has a significant effect on our abilities consumers to move from one platform to another. There's only one one platform

that serves our needs, whether it's shopping or communication. We are subject to those platforms rules on privacy, on sharing of our information, as well as giving them enormous pricing power in terms of what we pay for the goods

we buy through an Amazon platform. And to the extent we're not paying dollars and cents or or pounds sterling for the right to be on the platform, we are paying with our personal data, which is of great value not just the platform, but the people who sell products on those platform as the line I always sell my my teenage son. If you're not paying for the product,

you're the product your data. And lots of people tend to be worried about the size, the sheer size of these companies, but then you see things like the testimony that and that Mark Zuckerberg gave in his appearance on the in Congress a few years ago, where it became completely obvious that the senators really didn't know anything about Facebook and didn't know anything about social media. Do we have any sense that government really is going to be

able to do this better than the companies themselves? I think the any trust and worsers um at the Federal Trade Commission, the Justice Department no a lot more than than perhaps some people give them credit for knowing. You look at the Hill hearing that have been conducted NOAD eighteen months. There are a lot of people sophisticated in technology. And you see that frankly in the UK at the Central Markets Authority. You see it in in Brussels with

the European Commission. These are people who they have hired, people who know a lot about technology, who know how to hire installtance that will inform them where they may lack the knowledge. I think they're up to the task.

I really do. Is it fair to say that Facebook is the standard oil of our time, that great massive monopoly that Roosevelt broke up in the in the antitrust, the trust busting era of the early nineteen hundreds, well, no analogy is perfect, but I do think, uh, Facebook, Google, Amazon, Apple in their particular space, our tech platform that have enormous power, and that was what was that issue in the Standard oil case. How you address misuse of that power,

how you promote competition. Maybe somewhat different in technology than it was with Standard Oil or back thirty years ago when the government broke up the A, T and T monopoly, but they are comparable in the sense that they are very powerful companies that appear to be using that power to suppress competition, and that's bad for the American economy,

it's bad for consumer. The conversations I've had with people in motions about this have said that actually, there's a lot of talk about it, and the administration has kind of talked to big game, but ultimately it's going to be too hard and certainly very difficult to pass anything through Congress, and we're not going to see that kind of dramatic action against Facebook or other companies. Do you agree.

I don't know what's going to happen in Congress. You know, betting on Congress, which is so divided and so many issues right now, is not money well spent. At the same time, there are these anti trust enforcement actions which are pending, are moving on and have the ability to achieve that the courts agree that there's a problem there to achieve some of the results that that Congress is considering right now, and Congress may or may not pass. Just going back to where we started, do you think

they're trying to put too much onto antitrust? That it can be a policy for improving consumer outcomes in certain sectors, or helping workers get paid more in other sectors in fast food, for example, or it can be a way of tackling some of the things we don't like about Facebook or other social media platforms. But can it really do all of those things and reduce inflation? Are we just asking too much? I think we need to be careful about what we have competition policy who accomplished. I

think that is a fair caution. For example, um uh, unfettered competition can produce bad outcomes externalities in the environment, in terms of social outcomes, two big companies merge, they declare redundancies and workers are out of work. Is any trust the best way to address that problem? Or do you take it on as a public policy question where companies who are emerging are required to have an extended severance period continue to in the US to cover the

health benefits of workers declared redundant. So I I do think it is wrong to think of competition as the magic pill that will solve all problems. At the same time, there clearly our ways in which we can make competition policy a part of the solution to higher price is too overly concentrated industries to problems in terms of not just price, but also product quality and innovation. Nary Sumas,

for example, has has talked about scarcity denial. He says that some of the administrations sort of blaming of inflation on greed and price price gouging by companies is actually just in denial that there's a shortage of some key stuff at the moment because of the pandemic. And as long as you deny that, as long as you blame

it on greed, you're kind of not being serious about inflation. Well, I don't think anyone in this administration that I've heard speak or who's written something, has suggested that concentration is the soul or principle factor contributing to this recent inflationary trend. You know, fiscal policy, monetary policy, COVID shortages, the whole supply chain disruption clearly is having a driving effect on

price increases. At the same time, in concentrated industries you see the dominant firms doing more than just passing on price increases. They are actually adding a expl level of profit margin to their price increases. In truly competitive markets, that would be very hard to do, but in many industries, including UH agriculture, concentration makes it possible for that to happen. Bilbert,

thank you, You're welcome. It's been a pleasure. And now to road in a byzantine process to select the next Italian president, which may yet put Italy back at the top of the list of European countries most likely to have a crisis. You'll remember, last time we checked the great technocrats and savior of the euro the former head of the European Center Bank, President Mario drag was putting Italy on the road to reform and in the process putting it in line to receive billions of euros from

the European Recovery Fund set up in response to COVID. Well, now it seems drug is ready for a change. But what about the rest of Italy's government. Here's Alessandra Meliaccio. Mario Drag has been touted as Italy's savior from an endless political groundhog day loop, which is seen about seventy governments taking turns in as many years. The plot is a familiar one Italy in crisis, enter savior, reforms, exit savior, enter squabbling politicians, and again Italy in crisis and repeat.

But the presidential vote this week and the political frenzy around it has raised concerns about who will lead Italy if Drug leaves his post as Prime Minister, an executive role, to become the country's next president, a prestigious but less hands on role elected by the parliament. Will his legacy of changes be enough to make sure that Italy keeps up with the regular schedule of reforms promised to the

European Union. If not, it could put in jeopardy more than two hundred billion euros worth of recovery fund cash coming the country's way in the next few years. Enzovans, a politician and professor at Lewis University in Rome, is familiar with what he calls Italy's recurring loop of technocratic and then political governments, considering the present European recovery plans constrained, you need an expert and respected driver to lead the

Italian government. It is undoubtedly part of Mario Drugs positive legacy to have established a situation requiring the leadership figure of very high spending, whatever it happens means, served as Foreign Affairs and European Affairs Minister in three different administrations led by technocratic Premier Mario Monty and by political premiers Enrico Leta and grew Zeppe. Content He thinks Druggi has

raised the bar for whoever will come next. If he becomes President of the Republic, his replacement must have the strength and the specific competence to govern Italy through struck from reform strictly monitored by the EU authorities and institution. Not that Italy isn't able to pull itself together when needed.

It did so to become part of the Euro Single Currency Club, It did so to avoid catastrophe in two thousand eleven when it's financing caused sword to dangerous levels, and it did so last year when it met all of the EU criteria to unlock the first twenty four billion euro installment of EU Recovery Fund cash and in fact, meeting all the use requirements for its pandemic relief money

has been a heavy burden. There were fifty one targets to me from drafting laws to setting up of tender and selecting projects, and there will be more than a hundred goals this year, including proof of actual investments, always a challenge for Italy with its red tape in a history of not using YOU funds in time, and not using the funds would mean missing out on investments that

are the only way to fund growth and escape economic stagnation. Now, given Italy's ability to cram for exams but tendency to stray in between obligations, what Druggy tried working with you is to leave his country with a system that will force it to stay on track, regardless of the political squabbling. As Druggie himself put it during his end of year press conference, his presence is no longer indispensable. Hell, we have done three important things. We have turned Italy into

one of the most flaccinated countries in the world. We have delivered our National Recovery and Resilient Investment plan on time, and we have achieved to use fifty one targets, and so we have created the conditions that can allow and work on the recovery plan and its targets to continue. The government has created these conditions independently from whom will be in power. Yet a luck could still go wrong, particularly with Italy notoriously querulous politicians training at the leash

to take power once again. Inability to use funds and put in place long term growth could be fatal to Italy's future. And then there's always the chance of unleashing a sell off of Italian debt if markets don't trust the country's leadership. Druggy isn't stepping out of public life altogether. The Prime Minister and former head of the European Central Bank is now eyeing the presidential palace once a papal residents perched atop ROMs queerin Ali Hill. Druggy biographer Marco

Cecchini thinks it's really been his plan all along. One Druggy left MTB, he uh thought that Quirinale was his natural destination, and in fact the seven Moni of Farewell in Frankfort at the end of October twenty nineteen was a sort of crowning of him as leader, an European leader, and so that UH is another another contriguration to to

justify his destination UH in the Quirinale. After all, if he remains Prime Minister, drugging might get tracked down into the mire of political squabbling, has happened to Italy's previous technocratic savior, Mario Munty. If he manages to become president, however, he removes himself from the fray and becomes italy Is guaranteer and moral authority for the next seven years, possibly another way to break the ground home day cycle. And

that is it for this season of Stephanomics. We're supposed to kick off again in April, but if I talk to anyone really interesting in the meantime, we'll put it on this feed. And with Stephanomics gone, you should have that much more time to learn about the global economy by following at Economics on Twitter. This episode, all our episodes are produced by Magnus Henderson, with special thanks to

Molly Smith, Alessandra Miliaccio, and Bill Bear. Mike Sasso is executive producer of Stephanomics and the head of Bloomberg Podcast of Francesco mus