Corporate Pricing Power and “Greedflation”
An increasingly discussed factor in the cost-of-living crisis is the role of corporate pricing power and profit-driven inflation, often nicknamed “greedflation.” This refers to the idea that companies, especially large ones in concentrated industries, have capitalized on the recent turmoil to raise prices beyond what would be needed to cover their increased costs, thus fattening profit margins at consumers’ expense. In other words, not all price hikes have been purely a result of supply/demand; some reflect firms exploiting the situation to boost profits. This phenomenon can exacerbate inflation (and thus the cost-of-living crisis) because it means prices are higher than necessary from a cost perspective.
There is evidence to support these claims. In early 2023, the European Central Bank noted that profits contributed an exceptional two-thirds of eurozone domestic price growth in 2022, roughly double their usual contribution. Normally, unit labor costs (wages) and other factors would account for more, but the profit share of inflation was unusually high – implying firms expanded margins. Similarly, in the U.S., a report by the Groundwork Collaborative (a progressive think tank) found that corporate profits accounted for about 53% of U.S. inflation in the second and third quarters of 2022, compared to an average of just 11% during 1979–2019. They concluded that high corporate profits were a “main driver of ongoing inflation”, with companies keeping prices high even as some input costs fell.
One reason this could happen is the unique nature of the shocks. The pandemic and war created an atmosphere where consumers expected prices to rise – an “excuse” environment. For instance, when commodity prices spiked, consumers braced for higher grocery and fuel bills. Companies could then raise prices under cover of “inflation” without fear of losing customers to competitors (since competitors faced the same cost excuse). As UMass economist Isabella Weber explains, these cost shocks provided a coordination mechanism: firms saw that their competitors would likely raise prices too, so they did so in tandem – effectively implicit collusion. Weber noted, *“Firms do not even need to talk to one another to know that a cost shock is a great time to raise prices… But when costs fall, price-setting firms do not have any incentive to decrease prices”*. Thus, once prices ratcheted up, they tend to stay high absent competitive pressure to reduce them.
Examples abound: Take the consumer packaged goods industry. Big food corporations like those making snacks, cereal, or diapers (as cited in the Groundwork report) hiked prices significantly. The report highlighted the diaper market, where two giants (P&G and Kimberly-Clark) control ~70%. Diaper prices rose over 30% from 2019 to 2023, far above input cost increases. Wood pulp, a key input, did jump nearly 87% at one point, but then fell 25% – yet diaper prices did not come down accordingly. Instead, executives openly told investors they were enjoying “windfall profits” from declining input costs while keeping prices high. P&G anticipated an $800 million boost to profits due to lower commodity costs not being passed on. This pattern – costs up, prices up; costs down, prices stay up – means margins widen. Groundwork found that in the U.S., consumer prices rose ~3.4% in the past year while producer input costs rose only ~1%. The difference went into profits. No wonder corporate profit margins hit record levels in 2021–2022.
Another case: Grocery chains. In some countries, supermarkets were accused of opportunistic pricing. U.K. supermarkets, for example, faced scrutiny for raising prices faster than wholesale costs (though they dispute “greedflation” claims). In the U.S., meat processing is dominated by a few firms, and during 2021 beef prices soared, benefiting Tyson Foods and others with strong profits – the White House at the time blamed lack of competition for these outsized increases.
We also saw “junk fees” and surcharges proliferate – from fuel surcharges in shipping to higher service fees in hotels or concert tickets – as companies tested how much extra consumers would tolerate under the umbrella of “inflation.” The Roosevelt Institute notes the rise of things like “surveillance pricing” by grocery stores (using data to charge more to certain customers) and exploitative fees, indicating corporate tactics to extract more from consumers.
Of course, not every business had excessive pricing power. Many small businesses actually struggled with higher costs they couldn’t fully pass on, and some saw margins squeezed or failed. “Greedflation” arguments mainly target sectors with low competition or high market power. Energy is one – oil companies and utilities reaped huge profits as prices rose (hence windfall taxes in U.K./EU). Pharmaceuticals are another; while not directly driving broad inflation indices, the high cost of medicines in the U.S. has long strained living costs. Shipping companies (like ocean carriers) made record profits in 2021 due to extreme freight rates, far beyond their normal returns.
Critics of the greedflation narrative say the main cause was macroeconomic (stimulus and supply shocks) and that focusing on profits is a distraction. They argue if one company raised prices too much, a competitor could undercut them – so persistent high profits suggest either that competition is weak or that all companies faced legitimately higher costs. In reality, both supply-demand factors and pricing power were at play. Even the Fed acknowledged unusual mark-ups: one report described that historically, profit margins tend to compress when input costs rise (companies eat some costs), but in 2021–22, many companies instead increased margins. The Council of Economic Advisers in the U.S. found that roughly half the excess inflation in certain sectors could be attributed to unusually high growth in unit profits.
Why does this matter for the cost-of-living crisis? If a significant portion of price increases come from enlarged profits, that suggests there is “room” to reduce inflation by reining in such pricing behavior – potentially through policy measures – without causing mass unemployment. It flips the script from the classic wage-price spiral argument, instead pointing to a price-price spiral (firms raising prices because they can). For consumers, it certainly feels like gouging when you see necessities become less affordable while companies post banner earnings and CEOs boast about “pricing actions” on investor calls.
This has led to calls for solutions like stricter antitrust enforcement, price gouging laws, or even price controls on essential goods. The Roosevelt Institute suggests negotiating price caps on a basic basket of groceries (taking inspiration from Mexico’s pact with suppliers to stabilize staple food prices). They also urge cracking down on algorithmic price coordination and monopoly power in supply chains. The idea is to inject more competition or oversight so that companies cannot simply widen margins at will. Additionally, as mentioned, windfall profit taxes can recapture some of those gains to fund relief (the U.K.’s energy windfall tax in 2022–23 helped finance household energy subsidies).
The debate around corporate pricing power also feeds into the larger political narrative: In the U.S., Democrats have at times blamed “corporate greed” for inflation, while Republicans blame “government overspending.” In truth, multiple factors coexist. But one cannot ignore that record profit margins directly conflict with the hardship narrative of consumers. For example, U.S. companies in the S&P 500 saw near-record profit margins of about 13–14% in 2021, even as consumers said it was the worst time to buy things in decades. By mid-2023 those margins started coming down as demand cooled and some cost pressures remained, but they were still high by historical standards.
In Europe, the ECB’s commentary and the public discourse (especially in countries like France) have acknowledged profit-driven inflation. Christine Lagarde said firms that could raise prices easily did so, and now that wages are catching up, there’s a risk of second-round effects – essentially profits boosted prices first, and then workers understandably want higher wages to catch up, which could prolong inflation if not carefully managed. Thus, excessive pricing power not only hurt consumers immediately but could entrench inflation if it sets off delayed compensation demands.
In conclusion, corporate pricing power (“greedflation”) has been a notable cause of the cost-of-living crisis, operating somewhat stealthily alongside more visible forces like energy shocks. Addressing it might involve boosting competition, empowering regulators to prevent price fixing and gouging, and encouraging transparency. It also means a paradigm shift: rethinking the assumption that markets will self-regulate prices fairly in extreme circumstances. The past couple of years suggest that without sufficient competition or oversight, consumers can be overcharged during crises – adding another layer of unfairness to the cost-of-living challenge.