What is Greedflation?
Inflation throughout the Western world has been rising over the past few years because of some of the supply chain issues related to Covid-19, as well as the war in Ukraine causing supply chain issues in energy and food.
What is Greedflation?
Inflation throughout the Western world has been rising over the past few years because of some of the supply chain issues related to Covid-19, as well as the war in Ukraine causing supply chain issues in energy and food. All of these have contributed to inflation rising, but despite this, we are still seeing the profits of large companies rise throughout the Western World. This has led some to question how companies with increasing supply chain issues and supply-side price rises are able to increase their profits. This is where the term “Greedflation” comes from.
So what does it mean?
Greedflation is the concept that companies have, in the wake of inflation, increased their costs not only in line with supply-side inflation but, above it, therein making themselves more profits by taking advantage of the current inflation in products such as food and energy. Companies such as Centrica, the company that owns British gas, has posted record profits of £3.3bn for 2022, more than tripling its results in 2021. It raises the question, if the prices of energy have gone up for the supplier, how are they able to make these new and extreme profits?
Are companies taking advantage of inflation?
The answer isn’t that simple, and most of the backlash from this comes in relation to the fact that most countries are currently struggling. Countries like the UK, which has found itself particularly susceptible to these issues which, have been enhanced by the implementation of Brexit, as well as the Covid-19 pandemic and the war in Ukraine. When your average person is struggling with a cost-of-living crisis, it’s hard to see the cost of food and energy rise when you can see the companies charging these prices making record profits.
Furthermore, there may well be examples throughout the economy where some could rightfully be accused of raising prices too far to protect revenue impacted by the increasing inflation, and these should be examined and researched thoroughly.
The stark reality is that issues throughout the world are driving inflation on the supplier side and that companies are unfortunately forced to raise prices in line with that to protect their profits. Suppose we take, for example, supermarkets, which are currently being accused of profiteering. Abnormal weather patterns have caused droughts which have impacted food growth. The war in Ukraine has increased the cost of both fertiliser and fuel prices, so the cost of growing and transporting food has increased, which forces the supplier to increase their costs and, therefore, supermarkets to increase theirs in line with these rises.
If we take the UK as an example again, we can accuse the energy companies of making extreme profits in the face of an energy crisis, but again their costs have increased, and the UK was particularly impacted because their gas storage was woefully under-supplied and therefore the UK government was forced to buy more gas at higher prices to make up for this, which again drives profit for the company.
You could therefore surmise that it’s not necessarily true that companies are taking advantage of inflation to increase profits. They are simply raising prices to protect their revenue and profits. And whilst we could certainly argue that there isn’t a need for them to protect record profits, ultimately, it’s important to remember that these are private companies, and therefore at their core, their business model is designed to make the most profit possible for their shareholders. If it is deemed that their profits are exorbitant, then the relevant governments could increase regulation and taxes to help support those in the world most impacted by food and energy inflation.
Should companies be doing more to help?
There is certainly an argument that can be made that companies aren’t protecting their customers as well as they could or perhaps should, especially considering the enormous profits being made and the safety cushion they are making for themselves could, at least in theory, support reduced prices. Companies could do more to help people. They could invest in their workforce, offering better wage packages and protecting employees from the cost-of-living increases that way, therein supporting their employees. The energy companies could take this windfall in profit and invest heavily in renewables, which may make the increased cost of fossil fuels in the short term more palatable.
They could do all the above and slash their profits in half, but why should they? In the UK, the Bank of England’s governor Andrew Bailey commented that the price and wage increases ‘are unsustainable’. He suggests that it’s not just price increases but wage increases causing issues and driving inflation. So, perhaps it isn’t greed and a lack of empathy that is forcing these companies into these situations, but leaders of banks and companies around the world looking at the economic picture and telling them to hold fast in order to battle inflation.
It seems that the term ‘Greedflation’ is more of a buzzword than a reality. There likely are examples of companies profiteering, but not as part of some grand conspiracy to satiate their corporate greed and make record profits. Unfortunately, the reality seems to be that inflation is being driven by issues around the world, and ultimately, like in many scenarios throughout history, it is poor people that take the brunt of the damage when economic belts are forced to tighten. Optics are everything, and the term ‘Greedflation’ is likely driven by a working class that is beset by low wages, price increases, inflation, and an overall deterioration in their standard of living. In the meantime, you have a world in which the rich are seen to be getting richer, and it’s this dichotomy which is going to further fuel terms such as ‘Greedflation’.