Greedflation will probably prove to be a brief moment in history – two years, possibly three, when corporations jacked up prices above and beyond the extra costs they faced, while most people were more concerned with the pandemic and later the Ukraine war.
Brief it may be, but history won’t be kind if we ignore the importance of greedflation, as most economists and policymakers have done so far.
That’s because companies sneaking through mega price rises using the war and the pandemic as cover are stealing everyone’s incomes. They are 21st-century war profiteers and should be recognised as such.
The response of central banks makes the situation worse. Fixated on the past, they tell us a valid reaction to companies exercising their market power is to send borrowing costs soaring with a succession of interest rate rises to deter the wage claims they wrongly blame for inflation.
Before the latest panic over the consumer prices index (CPI) – when it fell less than expected from 10.1% in March to 8.7% in April – the extra bill for mortgage payers was estimated to be £12bn.
Now that the Bank of England’s base rate is expected to rise from 4.5% to 5.5% by the end of the year, this bill could jump to £15bn or more over the next two to three years as homeowners refinance their mortgages. Private renters are already feeling the knock-on effects as landlords pass on their loan costs to tenants.
A new report by researchers at the trade union Unite focuses on the profits made by Britain’s two largest supermarket chains. Commissioned in response to claims by Tesco and Sainsbury’s that they were innocent of overcharging, the research shows that after a bruising 10 years battling the discount chains Aldi and Lidl, the biggest guns on the high street have found a way during the past two years to regain some of their former glories.
The supermarkets say huge sums were “invested” during the pandemic to keep prices from rocketing, and that they have boosted worker pay. But they don’t dispute Unite’s figures, which are drawn from their own financial reports. These show that Tesco’s and Sainsbury’s operating profit margins in 2022 were the highest in eight years at 4.6% and 3.5% respectively. It seems the pandemic and then the Russian invasion of Ukraine gave both firms the chance to reset prices in the public’s mind.
Tesco plans to pay £859m in dividends in 2023 while the smaller Sainsbury’s will shell out £319m. “These are their highest ‘common’ dividends since 2015,” says the report.
Profit margins have slipped recently at both groups, but only slightly. And the underlying situation is a world away from 2015 when both chains were being battered by the German insurgents and operating margins were 0.3% at Sainsbury’s and 1.5% at Tesco.
It could be argued that it is unfair to single out Tesco and Sainsbury’s because they are just two of many to see their profit margins remain stable or even improve during the crisis. Their status as public companies means we can lift the lid on their operations and make a judgment.
The same profiteering may have happened at Lidl and Aldi, except we will never know. They are domiciled overseas and run by secretive billionaires.
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One might forgive the Bank of England for scratching its head. The Office for National Statistics, which provides information on corporate profits as a proportion of national income and the flipside of the coin – the share of national income going to workers – has delayed the publication of several reports, saying it is struggling to make sense of data it receives via surveys from employers.
Yet that is exactly why it is so important that policymakers commission original research. At one end of the spectrum, we can all see convenience stores have jumped on the inflation bandwagon and increased prices. At the other end, it is clear from the results of PepsiCo, Nestlé and Procter & Gamble that their profit margins have either remained fantastically high or even improved during the crisis.
As previous Unite studies have shown, UK consumers eat huge amounts of food produced and sold by US companies, and while the price rises might have initially been pushed higher by the rising cost of commodities, for some time this has proved to be an excuse.
Isabella Weber, an economist at the University of Massachusetts, calls it seller’s inflation. Paul Donovan, chief economist at UBS wealth management, has shown there doesn’t need to be collusion: just a discrete market where companies find they have the whip hand – food being one of them.
In the UK we should know more, but we don’t spend the money on research to get an accurate picture. Instead we let central banks, blinkered to the realities of corporate behaviour, batter us with ever higher interest rates.
