This is known as the phenomenon of Greedflation, which refers to the excessive rise in prices that is currently being recorded in various economic sectors, which is mainly linked to the excessive profits made by companies to the detriment of consumers, which increases economic pressures borne by individuals and families.
An analysis written by British journalist, Ed Conway, on the UK website Sky News, discussed the concept of “Greedflation” and explained how corporate profits put pressure on inflation rates.
However, he pointed out – with regard to the situation in Britain – that there is not much evidence that profits are the main cause of inflation, but that it is due to government taxes.
He noted that some economists argue that corporations are using the cost of living crisis as an opportunity to make excessive profits, explaining that this is not just idle theory; Economists at the European Central Bank already have statistical evidence to back it up.
Although consumer price index analysis is the traditional measure of price increases, it cannot provide a full understanding of the impact of price increases on workers and employers, and the magnitude of the benefits accruing to workers relative to employers from this price increase. .
Another way to analyze price figures is to look at the GDP deflator.
Looking at prices in this way, using another set of data, one can calculate how much earnings are contributing to the price pressure we are currently experiencing, and how much wages (or other factors such as taxes) contribute to it.
In other words, this measure can provide a more detailed analysis of the impact of profits, wages and other factors on prices, and it helps to identify the reasons for price increases and various economic changes. that affect them.
Analyzing the ECB data, it is quite clear that profits have been a big part of recent price increases; In the last two quarters of 2022, “profits” were responsible for the rise in prices more than the rise in wages. In Britain, despite the temptation to blame companies, there is not much evidence from these figures to suggest that companies are the main culprits. In fact, taxes (i.e. the government) contributed more to inflation from 2021 to 2022 than corporate profits.
Take the chance
But according to a researcher from the Peterson Institute for International Economics, Jacob Kierkegaard, he:
There is no doubt that many UK businesses have taken advantage of the end of lockdowns following the coronavirus pandemic, and now the energy price shock, to raise prices in many cases for the first time in several years. Many companies do this under the guise of “everyone does it!” It is likely that leading large companies have led the way (for higher prices) in many sectors.
And he points out, in exclusive statements to the “Sky News Arabia Economy” site, that “this phenomenon also exists in other European countries”, stressing that this is always expected of companies working to improve profits, as prices increase if they can get away with not losing customers, but that may not happen and so prices are unlikely to stay the same.
And he continues: In the UK in particular, there is a shortage of many basic commodities, and given that Britain’s exit from the European Union has severed traditional trading relationships with the rest of the Europe, so it’s no surprise that profit rates in the UK Although unlikely to be permanent, companies will lose the ability to raise prices without losing sales as the economic situation for consumers worsens. will deteriorate.
big challenges
Britain’s economy is suffering major challenges with high inflation and falling growth rates as Britain is the only Group of Seven country that has not returned to conditions before the outbreak spread from Corona.
The International Monetary Fund earlier raised its forecast for Britain’s economic performance in the current year 2023, from previous expectations of a contraction of -0.6% to a contraction of -0.3% in the last report. While the Fund believes that the scene in general does not look promising for London.
Britain has an inflation rate that is “the highest in Western Europe”. The country’s consumer price inflation rate was 10.1% in March, down slightly from 10.4% in February, according to data from the UK Office for National Statistics. Food and non-alcoholic beverage prices rose 19.1% year-on-year in March (the biggest increase since August 1977).
UK companies raise prices
In this context, Anwar Al-Qassem, an economist at the Financial Times newspaper, said in exclusive statements to Iqtisad Sky News Arabia:
Most of the big British companies make no secret of the fact that they are forced to raise prices due to high operating, energy and raw material costs. This has also been reflected in most services companies, and we saw this clearly this week when companies pushed back against the Governor of the Bank of England’s warning against rising prices. The governor justified his warning by saying, “If prices try to outpace inflation, inflation will rise.
Al-Qasim points out that “the UK economy appears to be staying longer in the abyss of economic recession, into which it has slipped due to stubborn inflation and the heavy burdens facing various activities. This is leading to an escalation of bankruptcies, which reached their highest level in 4 years, and the indicators are contrary to what the government promises to achieve growth and curb inflation.
He points out that it has become clear that inflation in Britain is higher than in the United States and Europe, where the consumer price index has been falling for months. In the United States, prices rose 5% last March, the lowest rate in nearly two years.
In the eurozone, the consumer price index fell in the same month to 6.9%, its lowest level since February 2022.
He concluded his speech by noting that “the British economy is suffering from the crisis of leaving the European Union, which has hit companies’ commercial relations with the countries of the European bloc, and has also reduced the volume of the British Stock Exchange , which lost many colonization operations.
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