- The evidence for ‘greedflation’ has so far been weak
- But new BoE data suggests margin rebuilding could drive inflation persistence next year
Earlier this year, there was a great deal of talk about ‘greedflation’: the idea that companies were using inflation as a cover to put their prices up, thus fuelling inflation further. Although it sounded plausible, the evidence proved less convincing. The OECD found only modest evidence of higher profits, while Bank of England (BoE) economists concluded that “the contribution of rising business profits to recent inflation is small”. What’s more, a recent report from the central bank found that only 30 per cent of firms saw any increase in their profit margins between Q1 2022 and Q1 2023. Over 40 per cent saw a decrease, while the remainder saw no change.
‘Greedflation’ might feel like a relic from an earlier economic time, but it would be premature to write it off entirely. Although the rate of inflation has fallen back from the double-digit peak it reached last autumn, forecasters still expect it to remain above target for the next 18 months. The still-rising price level could provide companies with the ‘excuse’ they need to engage in a bout of price hikes.