👑 getting royally screwed?
1 simple trick to actually understand rising prices
In the last few months, considerable ink has been spilled parsing the relationship between inflation and pricing, most commonly with grocery items. Canadians are seeing the price of everyday staples rise with every trip to the grocery store. The worries and frustrations are compounded while we read about record profits in the sector.
There are many reasons why grocery prices are rising at a faster rate than they have in the last forty years, and yet a vocal mistrust of the few corporations that dominate our country’s grocery sector persists. While this mistrust may be entirely unwarranted, consumers lack the concrete details that are necessary to convince them that their pocketbooks aren’t being stretched unnecessarily.
The pandemic period is just the start of structural, global economic issues that prompt price shocks. There will be future pandemics, more climate events that impact agriculture, major changes in migration patterns, and the ongoing impacts of new technologies that reshape how we live and work - all of which will make typical pricing patterns disappear.
🧰 Canada has been considering whether consumers have or are being exploited by firms with significant pricing power. But we haven’t been using all our tools. We’re missing a critical one.
Back in the spring, the Parliamentary Budget Office completed a Cost Estimate of an Excess Profits Tax in order to proxy the federal corporate income tax revenues that would be generated if an additional 15 percent tax rate was applied to excessive profits earned by big firms in 2020. The study was motivated by a request to ballpark the cost of introducing an “excess profit tax on big corporations that have been profiteering from the pandemic.” The curiosity and suspicion related to the ability of large firms to “profiteer” has lingered in this inflationary period because people lack the requisite evidence to deeply understand the relationship between price increases and corporate profit margins.
Receiving verbal assurance from executives is insufficient. Though representatives from these grocers have appeared at a Parliamentary Committee, parsing their financial reporting is hampered by their strategic approach to International Financial Reporting Standard 8 on “operating segments.” As has been pointed out by David Milstead, Loblaw’s disclosures, as well as Empire’s and Metro’s contain ‘lumpy’ retail segments that do not break out food and pharmacy products separately.
Canadians need (and deserve) more and better disclosure, not creative accounting; especially when CEOs are bragging about their ability to ‘mask’ price gouging under the guise of inflation. If we are to be subject to a limited amount of competition for many things because of the size of our population and economy, then the trade off for companies that profit from this scenario should be greater transparency around the goods and services the Canadians rely on day to day. We simply cannot rely on firms to ~voluntarily~ disclose details on the complex relationship between inflation and pricing.
Encouragingly, the Competition Bureau is currently studying how governments can take action to improve competition among grocery stores. Their current call for submissions to help them explore these dynamics concluded on December 16th. Indeed, current market study of retail grocery competition by the Competition Bureau seems like a promising mechanism to clarify the leaps in the price of food, but it is limited by the reality that the Bureau cannot compel grocers to disclose internal information that they use to make pricing decisions. On a recent episode of Canadaland, Canada’s Competition Commissioner Matthew Boswell conceded that the Bureau’s market studies are “always lacking because we don’t have the power to get information from a particular market or sector so we can’t really understand what is going on.” Yikes.
Our understanding could be significantly enhanced by a National Royal Commission (or “Inquiry”) on Competition and Fair Pricing that examines the profit margins of essential consumer basics like food, energy, cell phone and internet services. Led by distinguished individuals, experts or judges, Commissions of Inquiry have the power to subpoena witnesses, take evidence under oath and - most importantly - request documents. Though a Commission of Inquiry's findings and recommendations are not binding, many have a significant impact on public opinion and trust, and the shape of public policy.
Endowing the Competition Bureau with the ability to conduct market studies is long overdue, and seems a likely outcome of the current legislative review. But Canada can do more, faster, to investigate price dynamism on core goods as people get pinched. Plus, Canadians have already been conditioned to pay more than other countries for things like telecommunications, travel, and banking. Enough is enough.
A Royal Commission is immediately necessary to demystify the murkiness of Canadians who are experiencing economic insecurity, but also vocalising a mistrust of the motivations and transparency of the corporations that they are transacting with. In this financially fragile moment, policy people must_do_more to ensure we have definitely established the nature of the relationship between inflation and price gouging as they relate to the basket of essential goods. The issue is a matter of great importance to Canadians from coast-to-coast-to-coast and has already been characterised by controversy.
🏛️ Such a Commission would not be without precedent. Canada conducted a Royal Commission on Price Spreads in 1934, after the war. That report pointed to the problem of monopoly, observing that, “a study of the evidence…reveals at least a suspicion that some important articles of everyday use were not subject to price competition.” A Royal Commission on Prices followed in 1949, and specifically sought to explore “monopolistic prices in an inflationary situation” while also exploring the relationship between prices and wages. In 1959, a Royal Commission on price spreads of food products was conducted in order to better appreciate the difference(s) between the prices received by food producers and the prices subsequently paid by consumers. In 1978, the report of the Royal Commission on Corporate Concentration was published. Surely a follow up to these examinations is more than overdue.
🧺 Hinging every single competition issue on one piece of legislation (the Competition Act) in one Ministry puts all our eggs in one policy basket. It also makes it much more susceptible to lobbying and subsequent inaction. We have other levers and better, complementary tools to understand why and how the price of those eggs are changing and whether those changes accurately reflect inflationary pressures or are simply obscured by creative accounting practices. Not using them now would be a mistake. It’s time to get cracking. 🍳
🗞️ ”The last couple of years have brought an explosion of grift that grasps at straws and is misinterpreted as genius.” Find out what I think policy people should do about nonsense economies via the Financial Post.
Music from Kool Kids Music Club.
I agree with the mechanism - this is as good an area for a Royal Commission as any right now — I just think the use of the word ‘immediate’ is misleading, or optimistic. Once called, it will take 6-12 months to get up and running; and likely 24+ months to report. We will have been through, officially, another recession by then. And possibly a change of federal government. Then the new government - if it is led by PP - will dismiss or ignore most of the findings and blame it on Justinflation, non?