Critics are accusing large companies of exploiting crises such as the pandemic and the Ukraine war to drive up their profits, resulting in excessive and systematic price increases, also known as "greedflation." This accusation is supported by corporate data from 2019 onwards, which reveals significant profit margin increases for many companies, despite the challenging economic circumstances.

A study by Unite, the UK's largest private sector trade union, analysed the top 350 companies listed on the London Stock Exchange and found that their average profit margins increased from 5.7% in the first half of 2019 to 10.7% in the first half of 2022. Meanwhile, companies such as Procter & Gamble have been able to maintain a profit margin in excess of 17% over the past three years, with its CEO being rewarded with a 44% pay increase to $18m (£14.7m) last year.

Critics such as Albert Edwards, a senior analyst at Société Générale, argue that companies have taken advantage of recent crises to push up their margins, even as their raw material costs fall. He warns of "greedflation" lurking in the undergrowth and suggests that consumers are still "tolerating" this phenomenon due to excess government support. Meanwhile, Paul Donovan, the chief economist at UBS Wealth Management, argues that much of the current inflation is driven by profit expansion, with about 50% of inflation coming from margin expansion, rather than other factors.

While Bank of England Governor Andrew Bailey has no direct evidence that excessive profits are causing inflation to rise beyond what it would be if companies simply passed on extra costs to consumers, he has expressed concern about the need for companies to demonstrate restraint. Bailey implies that all companies have pricing power that allows them to maintain profits, but economists such as Isabella Weber from the University of Massachusetts Amherst argue that some companies benefit from crises more than others, with their prices mattering significantly.

The Guardian conducted a study in the previous year which revealed that certain firms were increasing their prices solely due to the rising costs of raw materials. For instance, Nutrien, a fertilizer company, saw a surge in profits of approximately $1.2 billion over the course of two years, as a result of "higher selling prices [that] more than offset higher raw material costs and lower sales volume."

Despite concerns raised by economists and policymakers, there is a lack of understanding about corporate pricing behaviour, and more research is needed. This could involve the central bank or Treasury sponsoring research on the subject to gain a better understanding of how companies respond to crises and how their pricing behaviours affect the economy.

Article by the Guardian