Large companies have exploited the pandemic and the Ukraine war to drive their profits higher, protecting dividend payments to shareholders.
That is the accusation levelled at big businesses by unions and a growing number of academics and City economists, who believe the corporate data from 2019 onwards reveals systematic and excessive price increases that can fairly considered price-gouging or, more emotively, greedflation.
Andrew Bailey, the Bank of England governor, says he has no evidence that excessive profits are pushing up inflation beyond where it would be if companies simply passed on extra costs to consumers, though he was concerned enough to tell firms during an interview on the BBC that they needed to demonstrate restraint.
True, there is no direct evidence from whistleblowers that executives in the US, Europe or Japan discussed how they should never let a crisis go to waste by loading prices, stealthily and excessively, to enrich their shareholders at the expense of consumers.
But critics of corporate behaviour during the pandemic and Ukraine war say such evidence is unnecessary when the figures drawn from company profit and loss accounts tell their own story.
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 increased from 5.7% in the first half of 2019 to 10.7% in the first half of 2022.
Procter & Gamble, the US-listed firm that fills entire aisles in supermarkets with its personal care brands, including Gillette, Braun and Tampax, has protected a profit margin in excess of 17% throughout the past three years. Its chief executive, Jon Moeller, was rewarded last year with a 44% pay increase to $18m (£14.7m) for his efforts.
Albert Edwards, a senior analyst at Société Générale, believes the rise in inflation to double digits in the UK, US and Germany over the last year was made worse by price gouging.
“Companies [have] under the cover of recent crises, pushed margins higher,” he said in a note. “And, most surprisingly, they still continue to do so, even as their raw material costs fall away. Consumers are still ‘tolerating’ this ‘excuseflation’, possibly because excess [government] largesse has provided households with a buffer.
“My own view remains that headline inflation will collapse below zero as food and energy comparisons turn deeply negative through this year. But beware corporate ‘greedflation’ still lurking in the undergrowth.”
Paul Donovan, the chief economist at UBS Wealth Management, says there needs to be a rebirth of the rip-off Britain campaign that became popular during the recession that followed the 2008 financial crash. “Much of the current inflation is driven by profit expansion,” he said. “Typically, one would expect about 15% of inflation to come from margin expansion, but the number today is probably about 50%.”
A study last year by the Guardian uncovered profiteering by firms that appeared to be putting up prices only because of increasing raw materials costs. The fertiliser company Nutrien’s profits shot up by about $1.2bn over two years on “higher selling prices [that] more than offset higher raw material costs and lower sales volume”.
Isabella Weber, an economist at the University of Massachusetts Amherst, has shown which kinds of companies are able to benefit from a crisis, giving academic support for what she considers a rational capitalist reaction to a crisis, one that allows them to make even bigger profits when consumers are primed to expect prices to rise in leaps and bounds.
The Bank of England policymakers Swati Dhingra and Catherine Mann have voiced their concerns in recent months that inflation will persist for this reason.
Bailey tarred all companies with the greedflation brush in his comments, implying they all have pricing power that allows them to maintain profits.
That is not what Weber says. She is clear some do – and they are important and their prices matter.
Now is the time for the central bank or the Treasury to sponsor research into the subject. We are all poorer for the lack of understanding about corporate pricing behaviour.
