Greedflation (Buzzwords of European Affairs 8/8)

The term "Greedflation" describes the phenomenon where companies exploit rising inflation to generate excessive profits, thereby exacerbating inflationary pressures on consumers. Various studies suggest that the significant price increases observed during the intense inflation periods of recent years were not solely due to rising energy costs, supply chain disruptions, and increased labor cost, but also due to profit-maximizing practices across different sectors.

One notable study published by the International Monetary Fund (IMF) in June 2023 revealed that, contrary to the common debate, rising energy prices were not the primary driver of the severe inflation experienced in 2022 and early 2023. Instead, the study found that increasing corporate profits were the largest contributor to inflation. According to the study, profits accounted for 45% of the price hikes, while import costs contributed 40%, and labor costs only 25%. As a result, workers and employees were the ones “paying the price of inflation”, leading to a further redistribution of wealth from the bottom to the top.

Social Democrats are aware of this issue and advocate for improved competition laws at the European level, emphasizing that low-income individuals suffer the most from severe inflation. The S&D group argues that competition law should not only ensure functional markets and prevent the abuse of market power but also guard against unjustified price increases that disproportionately impact vulnerable consumers.

The Commission’s REPowerEU-Plan, mainly aimed at phasing out Russian fossil fuel imports, provided member states with guidelines for imposing temporary taxes on excessive profits from electricity generation. Several countries, including Germany and Romania, implemented additional regulations to tax high profits in the energy sector. However, Social Democrats call for more precise, differentiated, and long-term solutions through European competition laws to address the cost of living crisis more effectively.

René Repasi, an S&D MEP and the European Parliament’s rapporteur on competition policy, highlighted a key issue with current competition laws: “...Currently, the Commission applies competition rules horizontally across all sectors. A price increase in yachts or Rolex watches is handled with the same priority as an increase in the price of bread or heating.”

Therefore, Social Democrats propose integrating a "vulnerable consumer standard" into the existing legislative framework to ensure that competition laws are more precisely targeted to those most affected by “Greedflation”.

You should read:

Francisco Costa-Cabral and Julian Nowag: EU COMPETITION POLICY REPORT: Greedflation, Competition Law, and the Cost-of-Living Crisis, Socialists and Democrats in the EU, 06/2023.

Niels-Jakob Hansen, Frederik Toscani, Jing Zhou: Europe’s Inflation Outlook Depends on How Corporate Profits Absorb Wage Gains, Internation Monetary Fund Blog, 26/06/2023.

Phillip Inman: Greedflation: corporate profiteering ‘significantly’ boosted global prices, study shows, The Guardian, 07/12/2023.