There is a growing consensus among experts, from academics to strategists and central bankers, that the current persistent inflation is more likely to be rooted in corporate greed or (more politically correct) their ability to simply raise prices. This is how the term greedflation (from greed-glan) or “scuzflation” was born.

Inflation in Romania in March was 14.5%, the pressure coming precisely from the “gradual transition to the prices of increased material costs and wage costs, as well as from the restoration or increase of a certain rate of profit in the context of the sustainability of consumer demand”, National Bank Report also recognizes 9 members of the NBR Council in the minutes of the last meeting.

Immediately after the pandemic, when inflation seemed to be rampant, everyone was still talking about its “transitional” nature. That prices have risen due to supply disruptions, and once those supply chains are restored, prices will calm down. But it was not like that at all.

A significant recovery in consumption after months of isolation, rising energy prices due to the war in Ukraine, was the main ingredient in this inflationary cocktail, leading to increased production costs for companies, which they are then forced to pass on to their customers.

The Competition Council imposed fines totaling 178.6 million lei (€36.2 million), of which 94% are sanctions imposed for cartel agreements

We should also add that in 2022, the Competition Council completed 8 investigations into violations of the Competition Law, imposing fines totaling 178.6 million lei (36.2 million euros), of which 94% are sanctions applied for cartel agreements. And this year, the department working under the Competition Council opened about 15 more cases for similar crimes. Last year, 97 companies were sanctioned for cartel agreements, 90% admitted to violating the law.

A study by economists Isabelle Werner and Evan Wasner of the University of Massachusetts, published in March, helps to understand the mechanism. Initially, the rise in prices is associated with the difficulties of ensuring the necessary goods on the shelves (supply shocks, as economists call them), associated with bottlenecks. This means a windfall for some companies (e.g. carriers, fuel distributors)

Then, “to protect their rate of return, downstream sectors spread these price increases and increase inflationary pressures. All because of the greed to get financial benefit from the deficit. “The workers are reacting and also demanding higher wages, which is normal given the high profits of the companies they work for and price increases in the stores they sometimes supply themselves.” In other words, the risk of a price-wage inflationary spiral is real.

At a time when social cohesion is breaking down, having a higher rate of return during a crisis can only fuel unrest

As for analysts, we increasingly agree with this theory, Albert Edwards, global strategist at Societe Generale in London, believes that “something seems to be broken in capitalism.” He points the finger at companies that he says have taken advantage of the pandemic and the war in Ukraine to make a profit. “At a time when social cohesion is already breaking down, I think that those companies that generate higher than normal profit margins during a crisis can only incite unrest,” he warns.

Piet Christiansen, chief strategist at Danske Bank in Copenhagen, points out, for his part, “the obvious risk that the fall in inflation will be slower than expected due to the increase in corporate margins.”

Oscar Arce, Director General for Economic Affairs of the European Central Bank, thinks no less. In an article published a few weeks ago on the ECB’s blog, the Spaniard even goes so far as to fear a price spiral “that could impoverish everyone.”

“Based on historical data, we would expect a cyclical slowdown in economic activity and a continued deterioration in the terms of trade to weigh on earnings,” continues Oscar Arce, but he notes that many sectors such as agriculture, energy, construction, manufacturing and others services, and they saw profits grow much faster than labor costs.

Goldman Sachs also has a report on this topic.

“The impact of earnings on domestic price pressures has been historically exceptional,” notes Oscar Arce. If, on average, from 1999 to 2022, profits accounted for about one-third of the GDP deflator (a measure of inflation, the editor notes), in 2022 they averaged two-thirds.”

The main risk, he said, is that consumers will try to compensate for these price increases by demanding higher wages, fueling an inflationary spiral.

Societe Generale strategist Albert Edwards also confirms that “the main driver of this inflationary cycle is an increase in the rate of return. Instead of citing this as the main cause of high inflation, central banks have instead chosen to focus on rising nominal wages as the main threat – the so-called “wage/price spiral”.

Companies used an inflationary context. Buyers expect prices to rise because of what they read in the press about rising commodity prices. Companies have clearly “taken advantage” of rising inflationary expectations to push price increases that far outpace cost growth, Edwards explains.

Others talk about “scouseflation,” or how flaws in the global supply chain, the war in Ukraine, or other incidents happening around the world give big corporations the perfect excuse to raise the prices of their products.