Large corporations have fuelled inflation with price increases that go beyond rising costs of raw materials and wages, pushing shopping bills to record highs, according to an analysis of hundreds of company accounts.
Highlighting a trend dubbed “greedflation”, the research indicates that supermarkets, food manufacturers and shipping companies are among hundreds of major firms who have improved their profits and protected shareholder dividends, giving an extra lift to prices, while the cost of living crisis has meant workers face the biggest fall in living standards in a century.
Analysis of the top 350 companies listed on the London Stock Exchange by a team of researchers at Unite, the UK’s largest private sector trade union, showed that average profit margins – a company’s revenue above the cost of sales – rose from 5.7% in the first half of 2019 to 10.7% in the first half of 2022.
“This means the average profit margin of firms in the FTSE 350 jumped 89% in the first half of 2022 compared with the first half of 2019,” the report said.
In the UK, Tesco, Sainsbury’s and Asda made combined profits of £3.2bn in 2021, almost double pre-pandemic levels, Unite’s 170-page report shows. Global food manufacturers such as Nestlé have also increased profits and margins over the last 18 months.
Higher profits margins are the result of “tacit collusion” by large companies, adding to the prices of hundreds of goods and services that were already under pressure after the Covid-19 pandemic and Russia’s invasion of Ukraine, the report said.
“Profiteering is a reflection of Britain’s broken economy. From price gouging to state-licensed monopolies in energy and utilities, the choices made by corporations are revealed to have caused historic ‘price spiralling’ – and governments are letting them do it,” it said.
Unite said it had also examined the accounts of international companies that sell services and materials that directly affect UK inflation figures.
“The four global giant agribusiness corporations that dominate crucial crops such as grains – ADM, Bunge, Cargill and Louis Dreyfus – saw profits shoot up 255%, making a combined $10.4bn in 2021. The world’s top 10 semiconductor manufacturers made £44bn profit between them – 96% more than in 2019,” the report said.
Tesco and Sainsbury, which together have a 43% share of the grocery market, are on course to make large profits again this year. Tesco said it expected to make profits up to £2.5bn this financial year, and Sainsbury indicated that it would hit almost £700m.
Sharon Graham, Unite’s general secretary, said households were suffering from a systemic problem. “Our research exposes where and how the economy is being rigged against workers – from supermarkets to energy bills, oil refineries to transport, we’re all paying the price,” she said.
Graham said she was concerned that policymakers in the Bank of England and the Treasury were focused on workers’ wages as a driving force behind rising prices when the analysis of corporate profits showed boardrooms played a significant role – insulating themselves from the impact of higher raw material costs by passing on price rises.
The report is an update on figures published last summer by Unite that revealed the growth of corporate profits while inflation soared and economic growth slowed to a halt across the industrialised world.
Graham said: “The profiteering crisis isn’t just a few bad apples – it’s systemic across our broken economy. Entire industries are choosing to take advantage of a crisis, resulting in the spiralling prices of goods we all need.”
The supermarket chains included in the report denied that they were partly to blame for rising prices. A spokesperson for Sainsbury’s said: “We are acutely aware of the pressures facing millions of households right now, and our number one priority continues to be doing all we can to keep prices low for our customers.
“In the last two years, we have invested over £550m in value, and we have consistently passed on less price inflation to customers than our competitors.”
An Asda spokesperson said: “Asda is the lowest-priced traditional supermarket and invested heavily during 2022 to keep prices in check for customers.
“This resulted in Asda topping the Grocer 33 weekly price comparison 43 out of 50 times last year and the Which? ‘big shop’ price survey every month during 2022,” they said, adding that “value products and a loyalty programme give customers money off every time they shop”.
Officials at the European Central Bank recently met to discuss the impact on inflation of price gouging by corporations, but have yet to reveal their conclusions.
The Bank of England official Catherine Mann recently said she was “concerned about the extent to which there is strong pricing power among firms and acceptance of those price rises by a lot of consumers”.
Paul Donovan, chief economist at UBS Wealth Management, is one of the few City economists to call attention to the increase in corporate profits as a cause of rising prices.
He said: “I believe that much of the current inflation is driven by profit expansion. Typically one would expect about 15% of inflation to come from margin expansion, but the number today is probably around 50%.
“One of the most telling signals is the decline in labour costs – automation has increased productivity, wage growth has been very weak in real terms, and as with commodity prices, moderating the inflation story rests on margin expansion.”
