The crucial role of corporate profits in unstoppable inflation

The crucial role of corporate profits in unstoppable inflation

In the world of economics and finance, there is an intriguing term that is attracting more and more attention: “Greedflation,” or in other words, the greed of corporations that seems to be contributing significantly to inflation in the Eurozone. Research from the Bank of England suggests that while there is no evidence of an overall increase in profits in the United Kingdom, some companies in the oil, gas, and mining sectors are earning much more than others.

Initially, there was skepticism regarding the concept of Greedflation. When the 15 main inflation factors in the United States were classified in the mid-2022, “Corporate Profit Pursuit” ranked 13th on the list.

However, over time, more and more research and data confirming the phenomenon emerged. Slowly but surely, it became apparent that many companies were adopting a specific approach to address the rampant demand and supply chain issues caused by the pandemic, choosing “Price over volume.”

The first to identify this phenomenon was Samuel Rines of Corbu, who began discussing companies’ preference for maintaining profit margins in 2022. Over time, he observed that some companies had the power to set prices for both quantity and volume. Subsequently, “Margin Price Choice” (MPC) started to transform into “Price and Margin.”

This situation became the subject of academic analysis, with Mike Konczal, Director of the Macro Analysis Program at the Roosevelt Institute, writing a report titled “Prices, Profits, and Power.” The focus of the report was on annual increases in net profit margins. In the period between 1960 and 1980, this margin stood at around 5.5%, while in the decade of ultra-low rates in the 2010s, it rose to 6%. In 2021, it experienced a significant increase, reaching 9.5%.

This remarkable increase sparked debate and discussion, raising the question of whether companies are raising prices out of necessity or taking advantage of the inflationary environment to increase profits, thereby further fueling inflation.

In addition to corporate greed, there are other sources of price increases, including overregulated locations, especially in the energy and construction sectors. In 2022, it was suggested that if one complained about inflation, blame could be placed on local officials.

The accumulated data has led to a reconsideration of the initially underestimated role of Greedflation. As consumers, we often do not see many of the elements that impact the final prices of products. For example, hidden fees have emerged in container shipping costs, with some oceanic companies charging exorbitant fees for containers stuck due to port congestion. This has inflated costs for products like furniture, coconut water, and even baby potties.

As costs start to weigh on American families, the global shipping industry is experiencing one of the most profitable periods in its recent history.