Previously, I looked at the present inflationary moment, arguing that it is being primarily driven by three factors: the impact of Covid on supply-chain issues, particularly in China; the impact of the Ukrainian war, especially on food and energy prices; and the impact of climate change, as regards crop failures and disease outbreaks. These are what I consider the primary factors behind the inflation we have been experiencing.

I also alluded to there being other factors at play, notably what I called greedflation. What I want to address here is the issue of greedflation, which I consider to be the main secondary factor involved in this inflationary moment.

So, what, exactly, is this greedflation? Essentially, it is price-gouging or profiteering, where companies take advantage of abnormal situations to increase profit. This refers to businesses not simply passing on the costs of inflation caused by the primary factors, in order to maintain their profit margins, but taking advantage of those primary factors to actually increase their profit margins. Essentially, with consumers aware — to varying degrees — of how these primary factors are increasing prices, and so more or less understanding of price increases, businesses are taking advantage of this to further increase prices above and beyond the true costs for the sake of profit.

There have been various studies in the past year looking at this phenomenon and trying to understand both the mechanics involved, but also what proportion of inflation may be attributed to this secondary factor as opposed to the primary factors. On this latter point, various researchers have calculated that it accounts for between 15 per cent and 57 per cent of the inflation being experienced.

One of the most detailed analyses has come from Unite the Union, the largest private-sector union in Britain, which concluded it accounts for 57 per cent of all inflation. Unite the Union reviewed the top 350 companies on the London Stock Exchange to determine the degree of greedflation of these companies since 2019, by looking at profit margins. While it goes into detail per company, covering essentially every industry in Britain, it found that average profit margins were 5.7 per cent in the first half of 2019, but 10.7 per cent in the first half of 2022. Basically, this means that the average profit margin of firms on the FTSE 350 increased by 89 per cent over this time.

The exact rate of profit-margin increase varied by sector, with those in the food sector showing particularly increased profit margins. For example, the four global giant agribusiness corporations — ADM, Bunge, Cargill and Louis Dreyfus — saw their profit margins increase by a meteoric 255 per cent. Semiconductor manufacturers (key components for computers) saw their profit margins increase by 96 per cent — this was partly under the cover of the Russian invasion of Ukraine and tensions over Taiwan. The three leading supermarket chains in Britain — Tesco, Asda and Sainsbury’s who together account for 56 per cent of all supermarkets in the nation — saw their profit margins increase by 97 per cent.

The 155-page report is a wealth of information, and I encourage readers to review it at their leisure — I have highlighted only a small part.

Download PDF File

Unite the Union report.pdf

Looking to better understand the mechanisms of greedflation — beyond the obvious motive of greed — there is an excellent analysis by the University of Massachusetts Amherst, Isabella Weber and Evan Wasner. While I encourage readers to engage with their analysis directly, as it is a 52-page document, I will attempt to paraphrase it here.

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Wasner-Weber analysis.pdf

They identify three points:

1, Firms typically do not lower prices, and raise prices only if they expect other firms to do the same. There is a herd mentality at play. Where the public are understanding of cost increases owing to well-publicised matters such as war, crop failure or pandemic-related impacts on supply chains, this is taken advantage of to raise prices above and beyond simply passing on the actual increased costs — that is, they take advantage of the crisis to increase their profit margins

2, Outside of cartels and norms of price leadership, sector-wide cost increases can function as a co-ordinating mechanism for price hikes within the industry, since all firms want to protect their profit margins and know that the other firms pursue the same goal — and firms that do not follow suit risk being penalised by financial investors. On this latter note, they cite the example of Target and Walmart in the United States who, in 2021, announced a strategy of absorbing cost increases — reducing, or not increasing, their profit margins — in an attempt to keep prices low in pursuit of customer loyalty. While this succeeded in terms of strong earnings performance, investors reacted by selling off shares and investing in rivals that had maximised increasing their profit margins

3, Firms can gain temporary monopoly power in situations where demand outstrips existing capacity by a wide margin. This monopoly power allows them to hike prices and increase their profit margins

In my opinion, the primary factors — pandemic, climate change, war — account for roughly half of the inflation we are experiencing, and the secondary factor of greedflation, from overseas suppliers, accounts for the other half. To what degree are local firms adding to this phenomenon? I simply don’t know. I suspect the bulk of greedflation is external, but I cannot rule out some local greedflation, either.

Importantly, though, Bermuda does have legislation on price-gouging, in the form of the Consumer Protection Act 1999. This would allow the Government to monitor whether companies have engaged in greedflation since 2019, and, importantly, act if this is determined.

• Jonathan Starling is a socialist writer with an MSc in Ecological Economics from the University of Edinburgh and an MSc in Urban and Regional Planning from Heriot-Watt University

• To view the Unite the Union report and the University of Massachusetts Amherst analysis, visit the PDF links at “Related Media”