Excess returns are among the key factors contributing to global consumer price rises, a study has found
Big businesses fueled inflation in 2022 by passing on greater cost increases than needed to protect their margins, according to a new report by the IPPR and Common Wealth think tanks.
Issued earlier this week, the joint study found that nominal business profits were on average 30% higher at the end of 2022 than at the end of 2019.
Big firms made inflation “peak higher and remain more persistent,” particularly within the oil and gas, food production, and commodities sectors, researchers said.
“We argue that market power by some corporations and in some sectors – including temporary market power emerging in the aftermath of the pandemic – amplified inflation.”
The report noted that this does not necessarily mean that overall profit margins have risen, but it does mean that higher prices have been shouldered by consumers.
“Companies with (temporary) market power seemed to be able to protect their margins or even reap ‘excess profits’, setting prices higher than would be socially and economically beneficial,” the researchers wrote.
Excessive profits were even larger in the US, where many important sectors of the economy are dominated by a number of powerful corporations, the report indicated.
“Because energy and food prices feed so significantly into costs across all sectors of the wider economy, this exacerbated the initial price shock – contributing to inflation peaking higher and lasting longer than had there been less market power,” the report concluded.
The researchers analyzed financial reports from 1,350 companies listed in the UK, US, Germany, Brazil, and South Africa. They identified Shell, ExxonMobil, Glencore, and Kraft Heinz as among the companies that increased their profits most from the pre-pandemic average.
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