17,000-company study of COVID greedflation shows most profited from cost-of-living crisis

The aftermath of the COVID-19 pandemic came with many “new normals,” not least hybrid working and rising prices. Suggestions are growing that the latter may not have been entirely the result of extraneous factors.

A study of 17,000 British firms by the country’s Unite Union found that on average they increased their profit margins by 30% in the post-COVID period compared with 2018-2019. 

The alleged price-gouging was rampant across industries, from supermarkets to energy firms and even private equity-backed veterinary chains. In total, 60%, or 9,651 of the companies analyzed increased their profit margins in the post-COVID period.

It occurred at a time when real wages fell for workers, who were dealing with historic cost of living pressures, particularly for essential items like food and heating.

The study, which Unite says is the largest analysis of company profits since the start of the COVID-19 pandemic, alleges that profiteering has become systemic among British firms.

“Over the last two years, Unite has consistently called out the profiteers driving the cost-of-living crisis,” the union wrote. “While workers have been hit with the biggest fall in real wages and living standards in generations, corporations have racked up hundreds of billions in profits.”

COVID profiteering

The global economy has endured an extended period of turmoil since the onset of the COVID-19 pandemic.

Unprecedented levels of government stimulus went into the wallets of workers and the coffers of companies to help them deal with the effects of lockdowns, creating vast inflationary pressures.

At the same time, supply chains were thrown into turmoil because of those lockdowns, distorting the global economy’s supply-demand dynamic.

To make matters worse, Vladimir Putin’s invasion of Ukraine and the subsequent tariffs placed on Russia caused energy prices to rise, while cutting off vital food inputs like grain.

Combined, these forces were responsible for the inflationary wave of the past few years, which peaked at 11.1% in the U.K. and 10.6% in the Eurozone. However, they also provided a rationale for businesses to increase prices faster than costs.

Unite’s findings are in line with previous studies on the profit margins of big businesses, which demonstrated that rather than absorbing higher costs from supply shocks, they were instead passing them onto consumers.

A global study of 1,350 firms, including the likes of Shell, Exxon Mobil, and Kraft Heinz, found profits rose by 30% between 2019 and 2022. 

The analysis by the Institute for Public Policy Research (IPPR) and Common Wealth also discovered that in the U.K., 90% of profit increases came from 11% of publicly listed firms.

In general, the companies surveyed by the think tanks were those best positioned to exploit rising prices, particularly in the energy and retail sectors.

Analysts have warned that blatantly benefiting from a widespread cost-of-living crisis can be so unpopular as to jeopardize the company’s social license to operate.

In a note published in April last year while inflation was still out of control, Société Générale economist Albert Edwards lamented corporate greed, the likes of which he hadn’t seen in his four decades in finance.

“The end of Greedflation must surely come. Otherwise, we may be looking at the end of capitalism,” Edwards wrote, accusing companies of using the war in Ukraine as an excuse to hike prices. 

“This is a big issue for policymakers that simply cannot be ignored any longer.”

Inflation has been coming under central banks’ control in the West in recent months. In the Eurozone, prices rose by 2.4% in March, falling closer to the target rate of 2%. It’s proving more stubborn in the U.K. and the U.S., where consumer price inflation remains above 3%.

That hasn’t stopped workers around Europe striking to demand better pay to keep up with the price rises of the past two years.

With companies increasing their profit margins—and, in the U.K. at least, taking the opportunity to award their bosses increasingly contentious pay rises—management may find it rather difficult to convince striking workers that they can’t afford to meet these demands.