(Story by Ryan Hogg, Fortune.com, 8 December 2023)
As they rolled their eyes at the frustratingly familiar sight of price markups on grocery store aisles, the shopper of 2022 might have wondered whether corporations were doing everything they could to keep prices down as inflation hit generational highs. The answer now appears to be a resounding no.
A joint study by the think tanks IPPR and Common Wealth found
profiteering by some of the world’s biggest companies forced prices up
significantly higher than costs during 2022.
Greedflation
Inflation soared across the globe last year, peaking near
11% in the Eurozone and above 9% in the U.S.
The source of that high inflation has become a well-trodden
line. Analysts have typically laid the blame on supply chain bottlenecks
created by excess demand during the COVID-19 pandemic and exacerbated by
Russia’s invasion of Ukraine.
The war also increased energy prices, leading to further
rises in inflation as suppliers factored in higher transport and running costs.
While this obviously contributed to rising prices, the
report finds that company profits increased at a much faster rate than costs
did, in a process often dubbed “greedflation.”
Profits for companies in some of the world’s largest
economies rose by 30% between 2019 and 2022, significantly outpacing inflation,
according to the group’s research of 1,350 firms across the U.S., the U.K.,
Europe, Brazil, and South Africa.
Inflation: What goes up doesn’t always come down
In the U.K., the research found that 90% of profit increases
occurred among just 11% of publicly listed firms. Profiteering was more broad
in the U.S., where a third of publicly listed firms were responsible for most
of the increase in profits.
The biggest perpetrators were energy companies like Shell,
ExxonMobil, and Chevron, who were able to enjoy massive profits last year as demand moved away from
Russian oil and gas.
Food producers including Kraft Heinz realized their own
profit surges. The war in Ukraine rocked global grain supplies and fertilizer
prices, significantly increasing the cost of food, which remains sticky.
The findings add to a growing body of research seeking to
highlight the role of major businesses in forcing up inflation last year.
A June study by the International Monetary Fund (IMF) found
that 45% of Eurozone inflation in 2022 could be attributed to domestic profits.
Companies in a position to benefit most from higher commodity prices and
supply-demand mismatches raised their profits by the most, the study found.
CEOs of the world's biggest companies consistently sounded the alarm on inflation as a
significant barrier to growth. Many blamed rising input costs on their own
price hikes. However, lots of those CEOs appear to have instead used the panic
of rising costs to pump up their balance sheet.
In April, Société Générale economist Albert Edwards released a scathing note saying he hadn’t seen
anything like the current levels of corporate greed in his four decades working
in finance. He said companies were using the war in Ukraine as an excuse to
hike prices in search of profits.
“The end of Greedflation must surely come. Otherwise, we may
be looking at the end of capitalism,” Edwards wrote. “This is a big issue for
policymakers that simply cannot be ignored any longer.”
Prices coming down
Inflation is now beginning to regulate in most major
economies and coming closer to most Central Banks’ targeted 2%. Some companies
that previously passed rising costs onto customers to continue making a profit
have now sought to repay them with price cuts.
Last week, Ikea stores owner Ingka’s deputy CEO said the
company would be spending $1.1 billion to absorb inflation and bring down the
prices of goods in its stores.
“People have thin wallets, but they still have needs,
dreams, and frustrations,” Juvencio Maeztu told Fortune.
In November, Walmart CEO Doug McMillon suggested the era of high inflation in the U.S. was
over, and shoppers may soon begin to experience a contraction in prices—known
as “deflation”—in company stores.
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