Greed Inflation: How Some Companies Use Price Rises to Generate Excessive Profits | Economy

British energy giant BP’s revenue tripled in the second quarter of the year, boosted by rising oil and natural gas prices following Russia’s invasion of Ukraine.

ExxonMobil and Chevron also reported massive earnings growth. The first doubled its numbers and the second multiplied its profits by 4.

US President Joe Biden criticized Exxon at a news conference for making “more money than God this year” at a time when Americans face record gas prices.

This phenomenon is repeated in all the world’s economies – and Latin America is no exception.

The oil giant defended itself, explaining that, in the last five years, it has invested twice as much of its profits worldwide.

“We invested during the recession to increase refining capacity in the United States, even during the pandemic, when we recorded losses of more than $20 billion. [cerca de R$ 104 bilhões]”, according to the company.

‘Greedflation’ – the inflation of greed – is the widening of profit margins with unnecessary and deceptive price increases. — Photo: Getty Images

But it wasn’t just gasoline and gas. Food, most services and a long list of industrial raw materials became much more expensive.

Therefore, questions began to be asked whether companies were taking advantage of the economic environment and inflation to increase their prices and reap higher profits in a context of economic slowdown. And, above all, how the price increases are also raising the cost of living.

Data released in March indicate that in the United States, corporate profits were higher in 2021 than in any year since the 1950s.

“Unfortunately, there are sectors that have increased their pricing power and profit margins, overcoming the argument that inflation was transient,” according to Paul Donovan, chief economist at UBS Global Wealth Management.

Experts argue that the concentration of product offerings in a few companies means that manufacturers can determine their prices as they wish — Photo: Getty Images

In the United States, this phenomenon was called “greedflation” – the inflation of greed. It means widening profit margins with unnecessary and misleading price increases.

Users of the expression accuse companies of having become too greedy, practicing exorbitant price increases. But there are those who disagree and believe that the expression has been politicized to blame the large conglomerates for inflation.

“Companies have become a convenient scapegoat for inflation,” according to Tsai Wan-Tsai, a marketing professor at the Penn Wharton China Center in Beijing, China.

He believes that business conglomerates are responding appropriately to inflationary pressures beyond their control. And he cites as culprits the war in Ukraine, rising oil prices, problems with logistics and supply chains, and changing consumption patterns during the pandemic.

Rising oil prices, fueled by the war in Ukraine, is considered one of the causes of global inflation — Photo: Getty Images

“Politicians always find someone to blame for economic ills that come in the form of inflation,” agrees David Fernández, an economics professor at the Francisco Marroquín University in Guatemala.

There seems to be a consensus among economists consulted by the BBC that, behind this phenomenon, there is an increase in monopolies and their power to set prices.

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

For him, “they are using inflation as an excuse” so that their profits are “the highest possible”. For the economist, workers are being punished by inflation and the real culprit is corporate avarice.

Reich mentions as an example the announcement by Procter & Gamble, that it would start charging more for basic consumer products, at the same time that the company registers enormous profitability. As a justification, the multinational mentioned “the increase in the costs of raw materials, such as resin and pulp, and the higher costs of transporting goods”.

Tyson, JBS, Marfrig and Seaboard are the big meat processing companies — Photo: Getty Images

“Fifty percent of the recent increase in food 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 economist.

According to him, these companies “are raising their prices in a coordinated way, even as they reach record profits. Here, again, they are using inflation as an excuse.”

For inequality researcher Brian Wakamo of the US-based Institute for Policy Studies, what happens in the oil and gas sector is the most egregious example of the inflation of greed.

Wakamo told BBC News Mundo – the BBC’s Spanish service – that “companies like BP may have had to move production from Russia to another country with higher production costs, or they may have higher costs of transporting their products, but the money they’ve been charging for their products is significantly higher than necessary”.

Wakamo also mentions the healthcare industry, which, “especially in the United States, charges consumers much higher prices than the cost of the drugs or the procedures themselves.”

Many companies across all industries closed or were sold during the pandemic — Photo: Getty Images

“As we’ve seen throughout the pandemic, companies have taken every opportunity to preserve their earnings. They have used government loans and grants and laid off employees, among other measures, to maintain profits. Executive wealth has also skyrocketed,” says Wakamo.

For many economists, what is behind inflation is the process of concentration generated as a result of the pandemic.

During 2020 and 2021, companies across all industries closed or were in very bad shape and were sold. “This concentration led to a reduction in supply and, therefore, to an increase in prices”, according to David Fernández.

The merger of major airlines created conglomerates, reducing competition. — Photo: Getty Images

We can see this situation, according to him, in the airline industry. In the United States and Europe, important conglomerates were formed, such as the Lufthansa group, the International Airlines group and Delta, which are part of several airlines or have acquired competitors.

Wakamo and Reich agree that behind this phenomenon are monopolies.

“Corporate monopolies fueled inflation for a long time,” says Wakamo. “The existence of fewer options in the market for the purchase of a product or service allows the company that is its main producer to determine its prices.”

“And when it’s one or two companies that control prices, they can raise the cost as they want. We’ve seen that in many sectors of the global economy,” he adds.

Workers’ wages remain low in the face of rising inflation, causing their purchasing power to decline in many parts of the world — Photo: Getty Images

For Reich, “the underlying problem is not inflation. It’s the lack of competition.” The former US Secretary of Labor recalls that, since the 1980s, the concentration of two-thirds of all US industries has increased.

“Monsanto now sets prices for most US corn seeds. Wall Street has been consolidated into five giant banks,” he says.

Reich adds: “Airlines merged – there were 12 in 1980 and now there are 4. Three giant cable companies dominate broadband: Comcast, AT&T and Verizon. A handful of companies control the pharmaceutical industry: Pfizer, Eli Lilly , Johnson & Johnson, Bristol-Myers Squibb and Merck.”

And, as most of these giants are present in markets around the world, the problem is not restricted to the United States.

The profits of top executives are also one of the causes of greed inflation — Photo: Getty Images

Another portion of people who support the inflation theory of greed point to executive salaries as a sample of corporate avarice.

A report by the North American Federation of Labor and the Congress of Industrial Organizations (AFL-CIO), published in July 2022, revealed that the CEOs (chief executive officers) of the 500 companies that make up the S&P 500 index had their salaries increased by 18.2% in 2021. It is worth remembering that inflation in the United States, at the time, was 7.1% and workers’ salaries increased by 4.7%.

The report reveals that CEOs of companies in the S&P 500 index earned an average of $18.3 million that year, which is 324 times the average salary of workers.

Corporate decisions formed the basis for today’s high-profit, low-wage economy — Photo: Getty Images

“Instead of investing in its people, raising wages and keeping the prices of goods and services under control, its strategy is to offer record profits thanks to rising prices, triggering a recession that will leave many workers unemployed” , says AFL-CIO Secretary Fred Redmond.

High profits, low wages

“Corporate profits and executive salaries are currently in the clouds, while the salaries of most American workers have remained low and unchanged in recent decades,” according to Redmond.

It says today’s high-profit, low-wage economy is, in part, a result of rules and policies that shape corporate decision-making.

“These rules have allowed CEOs, shareholders and executives to take more and more profits from US companies, at the expense of workers, business investment and long-term economic growth,” explains Redmond.

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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