(CTN News) – This chart in the Bank of England’s latest report on the economy shows that price gouging is still driving inflation.
It’s been reported for over two years – and downplayed by policymakers at the central bank – that corporate profits could boost inflation as much as wages.
Prices in the shops are going up while production costs are staying the same. Despite an easing of supply chain pressures and a drop in commodity prices, customers are paying 8% more for their goods than last year. It’s close to zero for producer prices.
This is the first time a gap like this has opened up since the 2008 financial crash. When there’s a competitive market for goods, a drop in wholesale prices usually leads to a drop in retail prices.
“That relationship suggests that goods price inflation could decline sharply in the near future,” says the Bank.
In spite of this, it’s forecasting the gap will continue, because it thinks other factors are at play – not just greedy businesses making windfall profits.
Other factors include energy costs, which aren’t included in factory prices. The report argues that despite the steep drop in gas and electricity prices this year, a lot of companies bought long-term, fixed-price energy contracts when prices were high, and those contracts aren’t up yet.
Gas and electricity costs may be higher than they were last year, so Inflation manufacturers can continue to pass the savings on to consumers.
Furthermore, the data excludes the effects of rising import prices, putting foreign suppliers at a disadvantage compared to domestic suppliers.
The Bank believes these reasons are more likely than price gouging, although they concede firms might be jacking up prices for one last hurrah before consumers realize inflation no longer exists.
There is a possibility that consumer-facing firms have sought to rebuild margins. The Bank says firms have not increased their margins at the economy-wide level yet.”
As a result, greedflation would seem to be flattened. There are no changes in margins, so nothing to see here.
In spite of that, businesses benefit greatly from margins remaining the same. Having maintained margins in such a challenging and uncertain period is a major accomplishment.
In addition to the increase in running costs, stable profit margins must lead to higher prices. Margin would fall otherwise.
During the crisis period, Nestlé and Procter & Gamble, which fill UK supermarket shelves with their products, have maintained or improved margins. A review of company reports by the Unite union found plenty more issues.
Which? in the spring? Aldi and Lidl were found to be responsible for the steepest rises in supermarket food prices. There had been a double whammy in the price of some items in a year, according to the consumer champion. Sainsbury’s, Tesco, Morrisons, Ocado and Waitrose all followed the German discounters’ lead.
Margins are suffering a little now, but not to the extent that they have fallen to prepandemic levels.
Business profits that create inflation aren’t scrutinized by the Bank of England. Prior to making a judgment, the Office for National Statistics (ONS) awaits data on company profitability.
During this week, the ONS will release its latest wage data. The profitability data, however, is eight months old. Despite falling household incomes, margins remained stable over the past two years.
It won’t be the timeliness of the data that motivates the Bank to focus on labour rather than capital when assessing prices across the economy.
Every time Governor Andrew Bailey mentions companies and their profits, he must have called for wage restraint 10 times. As a result, it deflects attention from inflation’s primary cause.