Most of us are, let’s say, all too familiar with what inflation is, but have you heard of its sneaky cousin greedflation? Greedflation is inflation gone rogue. It’s when businesses capitalize on economic circumstances to inflate their prices well above normal. They spend their time citing higher operating costs all while their profit margins are padded.
There’s a big debate going on about just how pervasive greedflation is and how much it’s the cause of our current economic climate. There was a time when many experts dismissed the idea of greedflation. Some are changing their tune.
How does it happen?
Corporations know that on any old humdrum day of the week, customers will only put up with so much of a price increase before taking a hard pass on shelling out their hard-earned money. In the financial world, this is called price elasticity. Equating how far a price can move with how much an elastic can stretch before it breaks. Price elasticity creates a natural profit ceiling for companies, keeping greedflation in check during regulator operating hours. Times of economic uncertainty are another story.
During times of economic uncertainty, instead of struggle, corporations with questionable ethics see opportunity. Circumstances like a pandemic, drought, and shortages offer up the perfect opportunity to put a significant price increase in place under the guise of a cover story they know customers will buy into. The story is typically some version of them saying that these unexpected circumstances mean it costs more for them to operate so prices had to go up.
Don’t misunderstand, more often than not, it’s true that costs go up when these things happen. The relationship between supply and demand is also very real. Greedfaltion comes into play when companies exploit the situation by raising prices more than required to cover the increased costs and typical inflation.
Just how real is greedflation?
The question of just how real and impactful greedflation is is a tricky one. It’s tricky because there are a number of ways to approach an examination of the issue. Even the simple question of what amount of profit margin equates to being greedy is debatable. For the economy to work companies need to make some sort of profit. There’s also the fact that we, as the public, only have access to certain information. It’s difficult to take a stand one way or another with incomplete information. That being said, let’s use the information we can get ahold of to examine the recent opportunity for greedflation, the pandemic.
Consumer Price Index
The Consumer Price Index’s (CPI) high-level view of the economy makes it a good starting point for our examination. The chart below highlights the annual CPI average of all items vs food, shelter gasoline, and energy. Looking it over brings up some interesting insights and questions to think about. The first of which is that out of the twelve categories included in the CPI, only four outdid the overall average: food, shelter, gasoline, and energy. This begs the question, why?
One clear reason is that each of these categories is essential. We need each of them to survive, at least in the modern-day sense of the word.
Let’s dig deeper.
Out of these four categories, two of them, gas and energy, started drastically increasing in 2020, peaking in 2022. Come 2023 though, they dropped pretty significantly. On the other hand, the other two categories, food and shelter, held steady until 2021 and have increased at a (not insignificant) steady incline ever since. Why the difference?
One main difference is the government. While the government plays a role in all four of these categories, they have a much more significant role in energy and gas, giving them a lot of sway and say in terms of their pricing. We, as the collective that votes the government into power, can keep them and, therefore, energy and gas prices in check. The government also knows that it needs to keep these areas in good standing to keep the economy as a whole in good standing.
What about the other categories?
Food and shelter are whole other beasts. Let’s dig even deeper into food as an example.
Food is a particularly interesting one to look at because it’s had, and continues to have, significant controversy around it. Most recently, one of the three main Canadian grocery players, Loblaws, agreed to fork out $500 million to settle a class-action lawsuit in a bread price-fixing scandal. What’s interesting to note is that their latest financial reports reveal a decrease of $290 million compared to the same time last year. At first glance, that might seem like a lot, but when you consider that they also reported $1,766 million in profit, it’s safe to say they’re doing just fine. Especially, when you read further to find that those numbers reflect their profit after paying out their settlement.
This may look like a slam-dunk case of greedflation, but Dr. Sylvain Charlebois says otherwise. As the Director Agri-Food Analytics Lab at Dalhousie University, Charlebois is the premier expert in all things grocery in Canada. In other words, his insights are worth noting. In Agri-Food Analytics Lab’s report Dealing with “greedflation” – Part II it says, “There is little evidence to suggest grocers in Canada and the United States are colluding or taking advantage of the current food inflationary wave the western world is experiencing. The publicly available data is inconclusive at best.”
The report centered around the chart below indicating that between 2018 and 2021 Canadian grocer profits remained steady.
What does all this mean?
What all this boils down to is truth.
What’s true for companies is that, to paraphrase Charlebois and his team, it’s their decision-makers with access to full financials that truly know whether greedflation is alive and well in their organization.
As for what’s true for the regular Canadian, greedflation or not, it’s getting harder and harder to put food on their table. That’s a scary fact to face and a hard pill to swallow, especially, when the grocers are approaching $2 billion in profit.
Where does all this leave us in terms of the existence of greedflation in the food industry and in general? In one word, stumped. Stumped by the numbers, stumped by how to find the truth, and stumped by what to do.
Protecting your wallet
The great news is, no matter how pervasive greedflation is, we don’t have to sit by ideally and watch our bank accounts dry up. There are things we can do as individuals that, when compounded by the collective, will push the needle to curb the effects of greedflation.
- Create and stick to a budget that fits within your means.
- Pay off high-interest debt, like credit cards and payday loans, promptly.
- Get in the habit of negotiating, even for those things not typically negotiated, like apartment rentals.
- Optimize your finances by making every dollar not being spent work for you.
- Build up a fully funded emergency fund.
- Diversify your investments and focus on inflation-stable investments like precious metals.
Lastly, the almighty dollar speaks wonders. Choose to use yours at those companies that have proven to be committed to fair pricing and ethical practices. To go even further, advocate for change. Get in touch with your government representatives or join advocacy groups in your area.
In the end, does all this really matter?
No. All this doesn’t really matter.
Hear us out.
Yes, it matters in that it’s important to be informed, but is it what really matters? No, greedflation shouldn’t happen, but seems what really matters is that more and more people are relying on food banks. Fewer and fewer people can afford to keep a roof over their heads. If that doesn’t indicate something needs to change in our economy, what does?
Even if greedflation is a contributor, it’s likely only a small part of a much larger puzzle. It just happens to be a piece that catches people’s attention, not the kind that ensures people have shelter and food. Focusing on one puzzle piece won’t inspire the actions needed to turn things around. Action, the type that actually gets things done, comes from staying squarely focused on one thing: finding a solution. It’s when we stay focused on solutions that humanity is at its best. That’s when we see real change, the kind that really matters, happen!