Revisiting Greedflation – The Huge Image


Over at Alphaville, Robin Wigglesworth seems to be at whether or not ‘Greedflation’ (aka price-gouging) meaningfully contributed to Eurozone inflation. Particularly, Bank of England analysis means that whereas they “discover no proof of an increase in total income within the UK” they did discover that “firms within the oil, fuel and mining sectors have bucked the pattern” with “some firms… rather more worthwhile than others.”1

I used to be fairly skeptical about Greedflation initially; when i ranked the highest 15 sources of US inflation in mid-2022, “Company Revenue Searching for” was on the backside, ranked 13 out of 15 inflation causes.

However as time went on, extra analysis and knowledge grew to become obtainable. Slowly however absolutely, we got here to be taught that extra firms had been adapting to the pandemic period’s mixture of rabid demand and provide chain snarls with a particular method selecting “Value over quantity.”

The primary particular person to establish this was Corbu’s Samuel Rines. (Twitter) He first started discussing the company choice for sustaining margin in 2022; over time, he noticed some firms had pricing energy for each price AND volume. Quickly after, “Value over quantity” started to morph into “Value AND Margin” (PAM).

It’s the sort of topic ripe for tutorial evaluation. Mike Konczal, director of the macroeconomic evaluation program on the Roosevelt Institute, wrote a report, Prices, profits, and power. (See charts above and beneath) The main target was on annual internet revenue margins. It was about 5.5% within the 1960 to 1980 period. Within the ZIRP decade of ultra-low charges within the 2010s, it rose to six%. In 2021, it shot as much as 9.5%.

That’s an enormous, unexplained enhance:



Fortune coated Greedflation on July 11, 2022: “There’s an enchanting debate enjoying out about markets, costs and inflation. Do firms increase costs as a result of they must, to be able to preserve tempo with inflation? Or, sensing a possibility to notch greater income, do they make the most of an inflationary setting to lift costs, thereby fueling inflation?” (emphasis added)

There are different sources of value will increase, together with hyper-regulated localities, particularly in power and housing. In August 2022, Vox advised that in case you had been mad about inflation you should blame your local officials.

The drip of information made me surprise how a lot I underestimated greedflation initially. As shoppers, we regularly don’t (and can’t) see most of the inputs into ultimate unit costs. Take into account The Hidden Fees Of Ship Cargo:

“A cadre of ocean carriers are charging exorbitant, probably unlawful, charges on delivery containers caught due to congestion at ports. Sellers of furnishings, coconut water, even children’ potties say the charges are inflating prices.”

As ballooning prices hit the wallets of American households, the worldwide ocean delivery business is having fun with its most worthwhile interval in current historical past. Within the first quarter of 2022, the most important carriers’ working margins hit 57%, based on one business analysis agency, after hovering within the single digits earlier than the pandemic.” (emphasis added)

Any business having fun with its most worthwhile interval in historical past will get my consideration.

My bias is that I used to be on Crew Transitory from the start. For positive, transitory took longer than expected, however as we discovered earlier this week, it asserted itself once more. However the danger of “stickier” inflation stays, pushed largely by corporate profits, aka Rines’ PoV and PaM:

“In uncommon conditions—resembling an financial system’s reopening after a pandemic—widespread information that prices are rising permits companies to lift their costs realizing that their rivals will act in the identical means, based on a paper by Isabella Weber, assistant professor of economics on the College of Massachusetts, Amherst, and her colleague, Evan Wasner.”

The “inform” about company income and greedflation got here after 2022 proved to be such a difficult yr within the markets. Regardless of 500+ BPS of fee will increase, a ~20% drop within the S&P500, and a 30+% drop within the Nasdaq 100, income have remained much better than expected:

“A comparability exhibits how extraordinary our present inflationary misery truly has been and nonetheless is. Not like throughout the Nineteen Seventies, firms at present wield adequate market energy to successfully defend their revenue mark-ups (and, by doing so, to comprehend greater income) throughout a time of inflationary stress that’s corresponding to that of the Nineteen Seventies.”

Whilst inflation has come again down, the aftermath is that value will increase have held. Company margins and income may very well be the explanation why value will increase will stick, whilst CPI falls again to regular. The speed of value will increase might have normalized, however the absolute value ranges at present are a lot greater.

As Emily Stewart noticed, “What goes up might not come down. Like, ever.”

Let’s hope she is fallacious…



See additionally:
Greedflation’ revisited (FT, November 16, 2023)

Profits in a time of inflation: what do company accounts say in the UK and euro area?
Gabija Zemaityte and Danny Walker
Financial institution Underground, 16 November 2023

Banana Ships And The Hidden Fees Of Ship Cargo
GCaptain, July 3, 2022

Prices, Profits, and Power: An Analysis of 2021 Firm-Level Markups
Mike Konczal Niko Lusiani
Roosevelt Institute June 2022

Why Is Inflation So Sticky? It Could Be Corporate Profits
Paul Hannon
WSJ, Could 2, 2023

Profit Inflation Is Real
By Servaas Storm
Institute for New Financial Considering June 15, 2023

The problem isn’t inflation. It’s prices.
by Emily Stewart
Vox, Nov 14, 2023



Who Is to Blame for Inflation, 1-15 (June 28, 2022)

Has Inflation Peaked? (Could 26, 2022)

Transitory Is Taking Longer than Expected (February 10, 2022)

The Tide of Price over Volume (April 21, 2023)





1. There are many similarities between the UK and the US, however loads of variations as effectively. The experiences with company margin enlargement throughout a interval of inflation within the U.S. appear to have been markedly totally different than these within the UK.

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