‘Greedflation’ or greed inflation: how some companies use rising prices to generate excessive profits

The profits of the British energy giant BP tripled in the year’s second quarter, boosted by the increase in oil and natural gas prices after the Russian invasion of Ukraine.

Both ExxonMobil and Chevron reported considerable jumps in earnings as well.

While the first doubled the figure, the second multiplied it by 4.

The president of the United States, Joe Biden, criticized Exxon during a press conference for making “more money than God this year” when Americans face record gasoline prices.

A phenomenon repeated in almost all the world economies and which does not escape Latin America.

The oil company defended itself by explaining that in the last five years worldwide, it has invested twice what it has earned.

“We have been investing during the recession to increase refining capacity in the United States, and we were investing even during the pandemic when we registered losses of more than US$20,000 million”, he stated.

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But it is not only gasoline or gas; food, many services, and a long list of industrial raw materials are now much more expensive.

Therefore, questions arise aimed at knowing if the companies are taking advantage of the economic environment and inflation to raise prices and reap more significant corporate profits in a context of economic slowdown.

And, above all, if with their price increases to earn more, they are raising the cost of living.

Data revealed in March that in the United States, Corporate profits were higher in 2021 than in any year since the 1950s.

“Unfortunately, there are sectors that increased their pricing power and profit margins, beating the argument that inflation was transitory,” says Paul Donovan, chief economist at UBS Global Wealth Management.

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In the United States, this phenomenon has been called greedflationor inflation of greed.

That is, increase profit margins by price increases that are unnecessary and misleading.

Those who use the term accuse corporations of becoming greedy and being behind the exorbitant price increases.

But others disagree and believe that the term has been politicized to point the blame for inflation at large conglomerates.

Guilty

“The corporations have become a scapegoat convenient for inflation,” explains Tsai Wan-Tsai in a podcast.

This professor of Marketing at the Penn Wharton China Center believes that these business conglomerates are responding appropriately to inflationary pressures beyond their control.

And he cites as culprits the war in Ukraine, the increase in oil prices, supply chain and logistics problems, and the changes in the patterns of consumption during the pandemic.

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“The politicians always find a culprit of the economic evils that appear in the form of inflation,” agrees David Fernández, professor of Economics at the Francisco Marroquín University in Guatemala.

There seems to be a consensus among the economists with whom the BBC spoke that behind the phenomenon is an increase in monopolies and their power to set prices.

“ANDexcuse”

“Prices are going up because corporations have the power to raise them, writes Robert Reich, a former US Secretary of Labor and professor of public policy at the University of California, Berkeley, on his blog.

“They are using inflation as an excuse” so that your earnings are as high as possible. “

For the economist, workers are being punished by inflation, and the real culprit is corporate greed.

And as an example, he cites the announcement of Procter & Gamble that it would start charging more for consumer staples while posting huge returns.

The multinational cited “the increase in the cost of raw materials, such as resin and pulp, and higher freight transport costs.”

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The largest meat processing companies are Tyson, JBS, Marfrig, and Seaboard.

50% of the recent increase in grocery prices comes from meat products: beef, pork, and poultry. Only four large conglomerates control most of the meat processing in the United States”, continues the expert.

“They are raising their prices and doing so coordinated, even when making record profits. Here again, they are using inflation as an excuse,” he says.

energy and health

For Brian Wakamo, what happens in The oil and gas sector is the most notorious example of greedflation.

This researcher on inequality from the Institute for Political Studies, based in Washington, tells BBC Mundo that “companies like BP may have had to change production from Russia to another country with higher production costs, or they may have higher costs transportation of their products, but the money they have been charging for their products is significantly higher than necessary. “

Wakamo cites the health industry, “especially in the United States, charging consumer prices much higher than the cost of the actual drugs or procedures.”

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“As we have seen throughout the pandemic, corporations have taken every opportunity to maintain their profits. They have used government loans and grants and employee layoffs, among other means, to keep them going. Executive wealth skyrocketed as well,” he says.

lack of competition

For many economists, what is behind this inflation is the concentration process resulting from the pandemic.

During 2020 and 2021, companies in all sectors went bankrupt or were in a very bad position and were bought.

“This concentration led to a reduction in supply and therefore an increase in prices,” says David Fernández.

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This is what we can see. For example, in the airline industry, states.

Some crucial conglomerates have been formed in the United States and Europe, such as the Lufthansa Group, the International Airlines Group, and Delta, which integrated several airlines or have bought the competition.

Wakamo and Reich agree that behind this phenomenon are monopolies.

“Corporate monopolies have fueled inflation for a long time. When there are fewer options in a market to buy a product or service, the company that is the leading producer dictates the pricesWakamo says.

“And when one or two companies control the prices, they can increase the cost as they see fit. We have seen this in many parts of the global economy“, Add.

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“The underlying problem is not inflation. It is a lack of competition“, Reich points out in his blog.

The former Secretary of Labor recalls that since the 1980s, two-thirds of all US industries have become more concentrated.

Monsanto now sets prices for most seeds corn from the United States. Wall Street has consolidated into five giant banks,” she says.

“Airlines have merged from 12 airlines in 1980 to 4 today. Three giant cable companies dominate broadband: Comcast, AT&T, and Verizon. A handful of pharmaceutical companies control the pharmaceutical industry: Pfizer, Eli Lilly, Johnson & Johnson, Bristol-Myers Squibb, and Merck”, he says.

And since most of these giants participate in global markets, the problem does not remain only in US territory.

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The earnings of the leading executives are also included in the causes of “greedflation.”

Also the managers

Another part of those who support the greedflation theory point to executive salaries as a sign of corporate greed.

A report by the American Federation of Labor and Congress of Industrial Organizations, published in July, revealed that the CEOs of the 500 companies listed in the S&P 500 saw their salaries increased by 18.2% in 2021.

And this is even though US inflation was then at 7.1%, and workers’ wages increased by 4.7%.

The report reveals that the CEOs of the S&P 500 received an average compensation of $18.3 million that year, representing a figure 324 times higher than the average remuneration of workers.

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“Instead of investing in their workforces by raising wages and keeping the prices of goods and services under control, their strategy is to amass record profits thanks to rising prices causing a recession that will leave many workers unemployed,” said Fred Redmond, secretary of the AFL-CIO.

High benefits, low wages

“Corporate profits and executive salaries are through the roof today, while the wages of most American workers have been low and stagnant for the past few decades.”

For the think tank, the current economy of high profits and low wages is partly the result of rules and policies that shape corporate decision-making.

“These rules have allowed CEOs, shareholders, and executives to move more and more profits from corporate America at the expense of workers, business investment, and long-term economic growth.

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