The impact of the COVID-19 pandemic has led to many “new normals”, not least hybrid working and rising prices. There is growing speculation that the latter may not have been entirely the result of external factors.
A study of 17,000 UK firms The country’s Unite group found that in the post-COVID period they increased their profits by an average of 30% compared to 2018-2019.
Alleged price gouging has spread widely across industries, from supermarkets to energy companies and even private equity-backed veterinary chains. A total of 60%, or 9,651, of the companies analyzed increased their profits in the post-COVID period.
This comes at a time when real wages have fallen for workers facing historic cost of living pressures, especially for essentials such as food and heating.
The study, which Unite says is the largest analysis of company profits since the start of the COVID-19 pandemic, claims profiteering has become systemic among UK firms.
“Over the past two years, Unite has consistently blamed speculators for the cost of living crisis,” the union wrote. “While workers suffered the biggest drop in real wages and living standards in generations, corporations made hundreds of billions in profits.”
COVID speculation
The global economy has experienced a long period of turmoil since the onset of the COVID-19 pandemic.
Unprecedented levels of government stimulus have flowed into workers’ pocketbooks and company coffers to help them cope with the fallout from lockdowns, creating enormous inflationary pressures.
At the same time, these restrictions have created turmoil in supply chains, distorting supply and demand dynamics in the global economy.
To make matters worse, Vladimir Putin’s invasion of Ukraine and subsequent tariffs imposed on Russia have driven up energy prices while cutting off vital food supplies such as grain.
Together, these forces have been responsible for the inflationary wave of the last few years, which peaked at 11.1% in the UK and 10.6% in the eurozone. However, they have also provided a basis for businesses to raise prices faster than costs.
Unite’s findings are consistent with previous research into the profitability of large businesses, which found that rather than absorbing higher costs from supply shocks, they instead pass them on to consumers.
A global study of 1,350 companies, including the likes of Shell, Exxon Mobil and Kraft Heinz, found that profits rose 30% between 2019 and 2022.
Analysis by the Institute for Public Policy Research (IPPR) and Common Wealth also found that in the UK, 90% of the increase in profits came from 11% of listed companies.
Overall, companies surveyed by think tanks were in the best position to take advantage of rising prices, especially in the energy and retail sectors.
Explicitly capitalizing on the widespread cost of living crisis could prove so unpopular that it threatens the company’s social license to operate, analysts warn.
In a note published last April, when inflation was still spiraling out of control, Société Générale economist Albert Edwards lamented corporate greed the likes of which he had not seen in his four decades in finance.
“The end of greedy inflation must come. Otherwise, we may face the end of capitalism,” Edwards wrote, accusing companies of using the war in Ukraine as an excuse to raise prices.
“This is a big problem for policymakers that simply cannot be ignored any longer.”
In recent months, inflation has come under the control of central banks in the West. In the eurozone, prices rose 2.4% in March, approaching the 2% target. The situation is proving more stubborn in the UK and US, where consumer price inflation remains above 3%.
That hasn’t stopped workers across Europe from striking to demand higher wages to keep up with rising prices over the past two years.
As companies increase their profits (and, at least in the UK, seize the increasingly controversial opportunity to increase their bosses’ pay), management may find it quite difficult to convince striking workers that they cannot afford to meet these demands.