Albert Edwards, a global strategist at the 159-year-old bank Société Générale, has released a blistering note on the phenomenon that has come to be called Greedflation. Corporations, particularly in developed economies like the U.S. and U.K., have used rising raw material costs amid the pandemic and the war in Ukraine as an “excuse” to raise prices and expand profit margins to new heights, he said.
Edwards wrote, in Global Strategy Weekly, after four decades of working in finance, he’s never seen anything like the “unprecedented” and “astonishing” levels of corporate Greedflation in this economic cycle.
Food prices have skyrocketed across Europe. In Germany, food inflation stands at 21.1%, while it is 15.8% in France. In the UK, prices are 19.1% higher than they were one year ago – a 45-year high.
This increase in the basic necessities has led to increased hunger lines in Spain, people being turned away from food banks in Germany, and an unprecedented rise in demand for food charities in the UK.
Yet at the same time profits have soared in many sectors while the cost of living crisis is continuing to bite. The multinational oil and gas giant Exxon Mobil posted record profits in the first quarter this year of over $11 billion, while millions face the choice of heating or eating.
In 2022, big oil doubled its profits to $219 billion. In the same period, domestic gas prices in the UK increased by 129% and electricity prices rose by 67%. This plunged 6.7 million homes into fuel poverty – an increase of 4 million since 2020.
Global grain monopolies’ profits have increased to historic highs and ‘excess food’ is being planned to be incinerated. Fertiliser manufacturers, benefiting from sanctions on Russian exports, saw a ten-fold increase in profits last year.
Research released in March by the trade union Unite showed that for the 350 largest companies listed on the London Stock Exchange;
Profit margins for the first half of 2022 were 89% higher than in the same period in 2019.
This includes supermarket chains, port operators, and road hauliers. The companies in last year’s Fortune 500 alone generated an all-time high $1.8 trillion in profit on $16.1 trillion in revenue.
Meanwhile people in the UK are experiencing the biggest sustained fall in the national standard of living for over 60 years. This has led to the accusation of price gouging and a new term Greedflation.
A recent report by Goldman Sachs suggests that rising workers’ pay accounts for less than a third of the growth in inflation, whereas they estimate that 50% is accounted for in the additional profits that businesses are making.
If we lived in a world of true market competition this state of affairs shouldn’t be possible. However, such a phenomena can only be understood as monopoly capitalism in which most industries are dominated by a handful of large multinational companies. It is a world where price fixing and agreements between cartels and monopoly powers, who thereby make super-profits, and is done at the expense of the rest of society.
Take for example energy. Between February 2022 and August 2022, wholesale gas prices increased by a whopping 267%. This led to an immediate increase in bills for households and businesses. Still since then, wholesale prices have fallen back by 77% as of February this year. However, energy retailers have failed to pass on the reduced costs to households.
Trade Union Unite campaign poster
The term greedy bastards does come to mind.
Of course it is very easy to blame the inflation woes on greed. Yet, we cannot ignore the massive amount of money printing that has been undertaken to shore up the economy. Conservatively, at least £10 trillion since 2008 has been printed as QE and then the plandemic allowed for a further $15 trillion to be printed. At some point this was bound to be expressed as inflation.
We also cannot ignore the impact on inflation that has largely been the result of supply chain problems from the lockdowns. ‘Just-in-time’ production methods helped push prices down. The shocks of the pandemic and the war on hyper-extended supply chains have led to shortages in industries, giving another impetus to inflation in the world economy.
In the past period, globalisation and the advancement of world trade acted to keep prices down yet now this has begun to unravel. There are those who argue this has been done deliberately.
Under the auspices of greedflation governing bodies will increasingly argue for the need for price controls as has already been presented by University of Massachusetts Amherst economists Isabella Weber and Evan Wasner. They argued that corporations engaged in “price gouging” during the pandemic and argued temporary price controls may be the only way to prevent the “inflationary spirals” that could come as a result of this gouging.
We now see protectionist measures increasing internationally. The US has recently introduced the cynically named, Inflation Reduction Act. Far from reducing inflation, the tax cuts and subsidies offered to reshore production to the US act to increase it.
Furthermore, sanctions against Russia, the ongoing war and increase in military spending will all add their own inflationary pressures. NATO members have pledged to increase their defence budgets by a combined $133 billion. This increase in spending is a burden on the economy and will add to the inflation crisis.
In other words inflationary pressures are coming at us from various angles. Although the greed of the multinationals and a profit driven culture is certainly one of them. As confidence in the fiat currencies crumble under the weight of inflationary expectations and debt burdens, people will eventually understand that it is not so much that prices are going up as that the purchasing power of the currency is falling.
When that happens all bets are off.
