U of I prof: Companies can’t absorb increased costs forever

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Stocks took another tumble on Wall Street on Wednesday, May 19, with the country still grappling with the effects of high inflation.

The bulk of the declines was in retail shares, specifically for nationwide store chains like Target and Walmart. It’s no secret that you have been paying more to buy many products at these stores because of the rise in prices due to inflation.

But, Dr. Matt Will, an economist with the University of Indianapolis, believes that you should have been paying a lot more over the last couple of months when you check out at the counter in these stores.

“Target’s operating profit margin dropped from 9.8-percent to 5.3-percent,” Will told Tony Katz on 93 WIBC. “What does that mean for the average person? It means Target has absorbed all the price increases.”

The products you buy cost money to make. With the increase in costs of materials to make those products, typically that extra cost gets passed on to you as the person buying the product in the form of a higher price you pay to buy it.

But, in order to stay competitive and to keep customers as happy as possible, stores such as Target have not increased prices accordingly to cover those extra costs and thus have taken on paying those extra costs at the expense of profits.

“Yes, you paid more when you went to Target. Yes, you paid more for your stuff,” Will added. “But, you should have paid even more. They took the hit and they reduced their profit margin by more than half. They absorbed those costs.”

Will warns that these companies cannot absorb those costs forever, and expects you to see even higher prices for goods in the coming weeks and months. He added that inflation is here to stay for now and that history has shown it takes years for prices to come back down.


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