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The Guardian - UK
The Guardian - UK
Business
Phillip Inman

Inflation may be low again now, but we are still being overcharged

Shipping containers stacked up at a port
Shipping costs added two percentage points to inflation between 2021 and 2022. Photograph: Mike Segar/Reuters

We should care more about being overcharged for the things we buy. After three years when UK shop prices have rocketed by about 20%, it is reasonable to examine whether the extra cost is justified and whether the government should have done more to protect us.

From the evidence it is clear that in too many cases the extra cost cannot be justified and governments have failed to intervene, doing much to undermine the foundations of social democracy. At the heart of the problem is the trend towards monopoly that characterises many of our most important industries – those where large companies have acquired huge marketing power and have found ways to cajole, entice and even bamboozle their customers to enhance their profits.

Some industry giants are household names, like Google, Amazon, Nestlé and Procter & Gamble. Others lurk in the shadows, acting as brokers or distributors.

Well-known or shadowy, they all make billions of pounds in profits and distribute large proportions of their gains to senior management. They protect their income streams by buying rivals, lobbying politicians and using the latest marketing methods to convince their customers they are getting a good deal.

Google is a good example and last week the US authorities signalled a clampdown on its monopolistic activities. In what is considered to be the most important anti-trust case for at least two decades, Judge Amit Mehta found that Google’s 95% stranglehold on the search engine market was achieved by blocking almost every avenue to rival products, allowing it to dominate advertising sales.

With a stock market value of about $2tn, making it bigger than the annual income of Australia, South Korea or Spain, Google’s owner Alphabet has the resources to appeal and has said it will.

One can only hope that the US Department of Justice and the Federal Trade Commission, which first brought the case to the courts almost a year ago, refuse to buckle and continue to scrutinise big tech companies for alleged monopolistic practices.

To show the case is not isolated, Amazon is also under scrutiny for allegedly abusing its power as a monopolist. Again, the lawsuit is about Amazon’s search function, and how it allegedly artificially inflated the prices paid by consumers. One complaint asserts that Amazon makes discount sellers invisible on its online marketplace in favour of its own registered sellers when a customer types in a search term. Amazon denies the allegations.

These are the systemic and systematic methods used to maintain high prices. Rivals are kept at bay and the potential for lower prices is denied. As if this wasn’t bad enough, the past three years have seen a form of exploitation that capitalises on a crisis to make lots of money.

Isabella Weber, an economist at the University of Massachusetts, calls it “sellers’ inflation”, which happens when the corporate sector manages to pass on a major cost shock to consumers by increasing prices to protect or enhance its profit margins. This happens even when the increase in raw materials or other costs have abated, but the company claims it is still affected.

Nestlé improved its margins during the pandemic and so did Procter & Gamble. They were not alone and inflation went up as firms with market power told shoppers they, and not investors, would pick up the tab. However, only oil and gas companies, Shell and BP among them, were singled out for windfall taxes.

Politicians understand little of these trends and that’s because economists in positions of power believe in markets. They believe any interference will have little effect.

Weber has highlighted the case of shipping companies, which profited from a jump in the demand for goods, including medical supplies, during the pandemic. Can it be true that the only way to overcome a rise in shipping costs when the next crisis hits will be to increase the number of container ships, even though that will take years and no government is going to build them and park them in a port ready for an emergency?

She reckons shipping costs added a full two percentage points to inflation between 2021 and 2022. Surely the solution is for governments to take a large slice of the profits and use it to subsidise prices?

Otherwise, the combined effect of sustained monopolies, highlighted by the Google and Amazon cases, and the profiteering seen during the recent crisis, will push low- and middle-income household finances to the edge.

Politicians need to prevent profiteering year in year out, and tackle it when there is a crisis, or risk a transfer of wealth from consumers to investors that destabilises previously healthy economies.

At the moment, politicians in the UK don’t acknowledge there is a problem. The Competition and Markets Authority has blocked several mergers, but its resources are stretched and it lacks the kind of political backing to crack down on corporate influence that regulators in the EU and US have.

That needs to change.

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