Victor Mijangos walks with his dog along the shore at Imperial Beach. However, don’t be fooled by the leisurely morning walk. He says the strong wind pushing him is more in line with the turbulent financial year he has had due to inflation.
“You have less purchasing power. It’s a bit frustrating. Maybe it makes you feel financially insecure,” Mijangos said as the strong wind continued to rock him back and forth.
The small business owner specifically pointed out that higher grocery prices were increasingly straining his monthly budget.
“We’re just strategizing to see what we could do around it to keep our heads above water,” Mijango said.
The Bureau of Labor Statistics says grocery store food prices were 12% higher in September than they were a year ago.
“In addition to the bird flu outbreak, there was bad weather that caused droughts,” said Alan Gin, associate professor of economics at the University of San Diego. “There have been floods, there have been frosts, things like that, and it has caused the price of food to skyrocket.”
This means that grocery stores pay more and pass those costs on to consumers. But we also see grocery stores posting big profits.
Kroger, which operates Food 4 Less and Ralphs, reported net profit of $732 million in the second quarter of this year, up 43% from the same period in 2021.
Albertsons, which includes Safeway and Vons, reported $342 million, up more than 14% from 2021.
The much smaller Sprouts Farmers Markets brought in more than $150 million, up about 4% from a year ago.
“Part of the market is that companies will try to maximize their profits. And so, in a sense, they’re greedy to try to make as much money as possible and return that money to their shareholders,” Gin said.
He added that these price increases might not happen if there was more competition, but we live in a world of consolidation.
“There is a proposed merger between Kroger and Albertsons, which will reduce competition even more than in the supermarket industry,” Gin said. “And so there is concern that this will help keep prices at these high levels.”
Kroger said it actually plans to cut prices as part of the merger.
It’s not just grocery stores – fast food restaurants are also posting strong profits.
Chipotle and McDonald’s reported earnings above expectations. Chipotle has raised prices 13% over the past year, while its profits jumped more than 11% from a year ago.
McDonald’s menu prices are also on the rise, as are its profits in the United States.
But what about salaries? Gin says that, for the most part, companies don’t pay their workers more, so it’s not an inflationary factor.
“Their labor costs are not rising as fast as prices. So the other factors have an impact on their prices and that actually translates into profits for the companies,” Gin said.
And the oil companies? We’ve all paid higher gas prices and the oil companies are showing big numbers too.
Looking at three of the biggest oil companies, all of them have seen their profits jump this year.
BP made $8.2 billion in profit in the third quarter of 2022. Shell said it made nearly $9.5 billion in profit over the same period. ExxonMobil said it earned nearly $20 billion.
Gin says it’s because oil companies sell both oil and gas, and both are worth a lot of money right now.
“They make money from the higher prices they get for oil. And then they also make more money in terms of the gasoline they sell,” Gin said.
We’ve reached out to every company we’ve named in this report and asked them to explain their profits, as many people struggle to pay their bills. None responded to our requests.
But what about salaries? Could they catch up with inflation?
“I think there’s going to be a continued gap, even though the labor market is very tight right now,” Gin said.
Meanwhile, Mijangos says he understands companies need to look after their bottom line. He has his own business after all. However, he wants there to be more of an equilibrium where it is not just the consumer who absorbs the higher costs caused by inflation.
“While they’re making a profit, it’s up to us to foot the bill, right? So the people in control have the upper hand,” Mijangos said as he finished his walk and headed home to start his workday.