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Big firms ‘driving shopping bills to record highs’ – Analysis by UK union shows large corporations have improved profits with price rises in cost of living crisis.
Large corporations have fuelled inflation with price increases that go beyond rising costs of raw materials and wages, pushing shopping bills to record highs, according to an analysis of hundreds of company accounts.
Highlighting a trend dubbed “greedflation”, the research indicates that supermarkets, food manufacturers and shipping companies are among hundreds of major firms who have improved their profits and protected shareholder dividends, giving an extra lift to prices, while the cost of living crisis has meant workers face the biggest fall in living standards in a century.
The Consumer Price Index (CPI) is a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services. Te CPI is published by the Office for National Statistics. It measures the average change from month to month in the prices of goods and services purchased by most households in the UK.
While the CPI measures price changes, cost-of-living inflation is the change in spending by households required to maintain a given standard of living.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 6.8% in the 12 months to April 2023, up from 6.2% in March, which is the highest rate since March 1992; the CPI goods annual rate eased from 12.8% to 10.0%, while the CPI services annual rate rose from 6.6% to 6.9%.
Global Greedflation
Analysis of the top 350 companies listed on the London Stock Exchange by a team of researchers at Unite, the UK’s largest private sector trade union, showed that average profit margins – a company’s revenue above the cost of sales – rose from 5.7% in the first half of 2019 to 10.7% in the first half of 2022. “This means the average profit margin of firms in the FTSE 350 jumped 89% in the first half of 2022 compared with the first half of 2019.”
In the UK, Tesco, Sainsbury’s and Asda made combined profits of £3.2bn in 2021, almost double pre-pandemic levels, Unite’s 170-page report shows. Global food manufacturers such as Nestlé have also increased profits and margins over the last 18 months.
The British pound has lost 99.654% of its value since 1751 – £100 in 1751 is equivalent in purchasing power to about £28,935.03 today, an increase of £28,835.03 over 272 years. The pound had an average inflation rate of 2.11% per year between 1751 and today, producing a cumulative price increase of 28,835.03%.
Today’s prices are 289.35 times as high as average prices since 1751, according to the Office for National Statistics composite price index. A pound today only buys 0.346% of what it could buy back then.
The inflation rate in 1751 was -1.96%. The current inflation rate compared to last year is now 10.70%. If this number holds, £100 today will be equivalent in buying power to £110.70 next year.
Higher profits margins are the result of “tacit collusion” by large companies, price fixing, adding to the prices of hundreds of goods and services that were already under pressure after the Covid-19 pandemic and Russia’s invasion of Ukraine.
“Profiteering is a reflection of Britain’s broken economy. From price gouging to state-licensed monopolies in energy and utilities, the choices made by corporations are revealed to have caused historic ‘price spiralling’ – and governments are letting them do it”. Unite said it had also examined the accounts of international companies that sell services and materials that directly affect UK inflation figures.
“The four global giant agribusiness corporations that dominate crucial crops such as grains – ADM, Bunge, Cargill and Louis Dreyfus – saw profits shoot up 255%, making a combined $10.4bn in 2021. The world’s top 10 semiconductor manufacturers made £44bn profit between them – 96% more than in 2019,” the report said.
Tesco and Sainsbury, which together have a 43% share of the grocery market, are on course to make large profits again this year. Tesco said it expected to make profits up to £2.5bn this financial year, and Sainsbury indicated that it would hit almost £700m.
Sharon Graham, Unite’s general secretary, said households were suffering from a systemic problem. “Our research exposes where and how the economy is being rigged against workers – from supermarkets to energy bills, oil refineries to transport, we’re all paying the price,” she said.
Graham said she was concerned that policymakers in the Bank of England and the Treasury were focused on workers’ wages as a driving force behind rising prices when the analysis of corporate profits showed boardrooms played a significant role – insulating themselves from the impact of higher raw material costs by passing on price rises.
The report is an update on figures published last summer by Unite that revealed the growth of corporate profits while inflation soared and economic growth slowed to a halt across the industrialised world.
Graham said: “The profiteering crisis isn’t just a few bad apples – it’s systemic across our broken economy. Entire industries are choosing to take advantage of a crisis, resulting in the spiralling prices of goods we all need.”
The supermarket chains included in the report denied that they were partly to blame for rising prices. A spokesperson for Sainsbury’s said: “We are acutely aware of the pressures facing millions of households right now, and our number one priority continues to be doing all we can to keep prices low for our customers”.
Asda said: “Asda is the lowest-priced traditional supermarket and invested heavily during 2022 to keep prices in check for customers.”
Officials at the European Central Bank recently met to discuss the impact on inflation of price gouging by corporations, but have yet to reveal their conclusions.
The Bank of England official Catherine Mann recently said she was “concerned about the extent to which there is strong pricing power among firms and acceptance of those price rises by a lot of consumers”.
Paul Donovan, chief economist at UBS Wealth Management, is one of the few City economists to call attention to the increase in corporate profits as a cause of rising prices.
He said: “I believe that much of the current inflation is driven by profit expansion. Typically one would expect about 15% of inflation to come from margin expansion, but the number today is probably around 50%.
“One of the most telling signals is the decline in labour costs – automation has increased productivity, wage growth has been very weak in real terms, and as with commodity prices, moderating the inflation story rests on margin expansion.”
Skyrocketing prices have drawn comparisons with the 1970s when inflation was running rampant and there was widespread industrial action. Recession in 2023 looks almost inevitable, further prolonging the pain felt last year.
The Bank of England forecasts inflation to drop sharply – When will we start to feel the effects of that in our pockets? It will get worse before it gets better, greedy shareholders will not take their fingers off the screws, seemingly ever more determined to bleed every last drop of profit until they (eventually) break us.
Accounts show profit margins at ABF’s global sugar division fell last year, in part because of high energy costs for its UK factories. The group, which also owns the Primark retail chain, has said it plans to “recover inflation through cost mitigation and price increases” this year. Sugar fails, take it from somewhere else (clothing), do what ever it takes to keep ‘the’ profits up?
David Exwood, who farms more than 1,200 hectares south of Horsham, in West Sussex, says the problem for farmers is that large price increases in 2022 will stick with the industry for months, as energy, fertiliser, and other contracts agreed when input costs were high take time to be replaced.
“Prices went up overnight, then are much slower to come down,” he said, predicting that consumers were likely to experience high food and drink prices for a long time to come. “Inflation is really hard to kick out of farming.”
Viva la Revolution people?
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