Corporate profits have been growing at unprecedented rates, and inflation in producer prices has risen sharply as well. Our FRED graph above helps us compare the two and briefly discuss their relationship.
Pre-tax corporate profits (shown by the blue line) increased by 51% between the fourth quarter of 2019 and the first quarter of 2022. During the same period, producer price index (PPI) inflation in manufacturing rose by 21.2% (shown by the red line).
Why would this matter? PPI inflation measures changes in prices producers receive for their products and prices other producers pay for those products as intermediate goods in their own production. During the COVID-19 pandemic, supply chain disruptions contributed to an increase in the price of these products. (See this Review article for a deeper discussion.) And yet, corporations seem to have passed through enough of these intermediate costs onto the consumers of their final products to see record profits and large profit margins.
How this graph was created: Search FRED for “corporate profits” and select “Corporate business: Profits before tax (without IVA and CCAdj).” From the red “Edit Graph” button in the top right, use the “Add Line” tab at the top to type in the search box “PPI manufacturing” and select “Producer Price Index by Commodity: Total Manufacturing Industries.” Change the units for PPI to “Percent change from a year ago.” In the “Edit Graph” panel, use the “Format” tab and under Line 2 change the y axis to “Right.” Change dates in the top right of the graph to the desired period.