Here's an example of a small business that resells “materials”. You can substitute materials for anything in this example. The business owner has 2 employees that help him acquire and deliver these materials to resell and their salaries are 2,000USD/month for each employee.
Business Expenses
- 100,000USD – materials
- 4,000USD – 2,000USD/month salary for two employees
Total Monthly Business Expenses
- 104,000USD
Business Profits
- 200,000USD – reselling materials at twice the price they were bought for
Tax Amounts
- 70,000USD – 35% for Uncle Sam
Net Profits
- 130,000USD – After taxes and before business expenses
- 26,000USD – After taxes and after business expenses (130,000USD minus 104,000USD)
Inflation sets in and everything is now 2x higher in this hypothetical situation, so the business owner now has to pass down the costs to the clients by charging them double when they resell.
New Business Expenses
- 200,000USD – materials
- 4,000USD – 2,000USD/month salary for two employees
New Total Monthly Business Expenses
- 204,000USD
New Business Profits
- 400,000USD – reselling materials at twice the price they were bought for
New Tax Amounts
- 140,000USD – 35% for Uncle Sam
New Net Profits
- 260,000USD – After taxes and before business expenses
- 56,000USD – After taxes and after new business expenses (260,000USD minus 204,000USD)
The business owner's profits should've only increased to 52,000USD, but since they're not giving their employees any raises to match inflation, they're actually pocketing an extra 4,000USD per month, which should go to their employees, and that comes to a total of 56,000USD.
The employees are stuck paying for groceries, utilities, and possibly rent at twice the price, but their salaries remain the same.
That's how these companies are ripping you off with inflation.