As they rolled their eyes at the frustratingly familiar sight of price markups in grocery store aisles, 2022 shoppers might have wondered if companies were doing everything they could to keep prices low as inflation was reaching generational highs. The answer now appears to be a resounding no.
A joint study Profits from some of the world’s biggest companies have pushed prices significantly higher than costs in 2022, according to think tanks IPPR and Common Wealth.
Greed
Inflation soared around the world last year, peaking near 11% in the eurozone and above 9% in the United States.
The source of this high inflation has become a well-known line. Analysts have generally blamed supply chain bottlenecks created by excess demand during the COVID-19 pandemic and exacerbated by Russia’s invasion of Ukraine.
The war also pushed up energy prices, leading to a further rise in inflation as suppliers factored in higher transportation and operating costs.
While this obviously contributed to rising prices, the report found that corporate profits grew at a much faster rate than costs, in a process often referred to as “greed.”
Corporate profits in some of the world’s largest economies rose 30% between 2019 and 2022, far outpacing inflation, according to the group’s research of 1,350 companies in the US, UK, Europe , in Brazil and South Africa.
In the UK, the study found that 90% of profit increases occurred in just 11% of listed companies. The profits were more widespread in the United States, where a third of publicly traded companies were responsible for most of the profit increase.
The biggest culprits were energy companies like Shell, Exxon Mobil and Chevron, which were able to profit massive profits last year as demand shifted away from Russian oil and gas.
Food producers, including Kraft Heinz, also saw a sharp increase in profits. The war in Ukraine has shaken global grain supplies and fertilizer prices, significantly increasing the cost of food, which remains high.
The findings add to a growing body of research aimed at highlighting the role of big businesses in driving up inflation last year.
A month of June study The International Monetary Fund (IMF) has estimated that 45% of euro zone inflation in 2022 could be attributed to domestic profits. The companies best positioned to benefit from rising commodity prices and a mismatch between supply and demand were those that increased their profits the most, the study found.
CEOs of the world’s largest companies regularly sounded the alarm on inflation, seen as a major obstacle to growth. Many blamed rising input costs on their own price increases. However, many of these CEOs appear to have taken advantage of the panic over rising costs to pad their balance sheets.
In April, Société Générale economist Albert Edwards issued a scathing note saying he had not seen anything like the current levels of corporate greed in his four decades working in finance. He said companies were using the war in Ukraine as an excuse to raise prices in pursuit of profits.
“The end of Greedflation must surely come. Otherwise, we could see the end of capitalism,” Edwards wrote. “This is a major problem for policymakers that simply cannot be ignored any longer. »
Prices are falling
Inflation is now starting to regulate itself in most major economies and is approaching the 2% target set by most central banks. Some companies that previously passed on rising costs to their customers in order to continue making profits are now seeking to repay them by lowering prices.
Last week, deputy CEO of store owner Ikea, Ingka, said the company would spend $1.1 billion to absorb inflation and lower product prices in its stores.
“People have thin wallets, but they still have needs, dreams and frustrations”, Juvencio Maeztu said Fortune.
In November, Walmart CEO Doug McMillon suggested The era of high inflation in the United States is over, and shoppers may soon begin to experience price contraction – known as “deflation” – at corporate stores.
This story was originally featured on Fortune.com
