What is 'greedflation' and are big companies to blame for driving up inflation?

Fuel prices have spiked since the Russian invasion of Ukraine
Credit: PA
The Competition Market Authority has said it believes supermarkets are increasing their margins on fuel. Credit: PA

By multimedia producer Connor Parker

For months economists have predicted inflation will start falling yet it has remained stubbornly high and there's a new argument as to why - greedflation.

This week the Competition Market Authority (CMA) opened an investigation into the UK's supermarkets saying their fuel margins are higher than they should be.

The CMA says fuel margins at supermarket forecourts are on average 5p higher than normal levels.

This has added fuel to the fire of those saying that businesses have been using the cost of living crisis to increase their own profits.

What is 'greedflation'?

Essentially greedflation is when a business has increased its prices due to inflation raising its costs, but when its costs then fall back they do not lower prices in response and therefore, increase profits.

Businesses can also be accused of greedflation if their operating costs have not increased but they raise their prices anyway because everyone else is.

ITV News consumer editor Chris Choi reports on an investigation into whether failure in competition is leaving consumers paying higher grocery and fuel prices

The CMA has pointed out diesel is on average 154.3p a litre at supermarket forecourts, higher than the 145p cost of petrol.

But, according to the CMA, the retail price of diesel - the price businesses pay to buy the fuel they put in their pumps - is actually 4p lower than petrol.

Whether companies keeping prices high is actually greed or not is hard to say.

Many firms will argue that despite the fall in their costs they need to keep prices high to recover from the difficult times during the height of the Covid pandemic and the cost of living crisis.

Food inflation has remained stubbornly high. Credit: PA

They will also point to the higher wages demanded by staff to help them deal with the cost of living crisis permanently creating a need for higher prices.

Outside of fuel, many are asking if supermarkets are also keeping food prices artificially high.

With food inflation running above 17% and remaining stubbornly high many are struggling to put food on the table.

But despite opening an investigation into supermarket fuel sales, the CMA said they had not seen any evidence of greedflation in food sales "at this stage".

Even if supermarkets are keeping more money from their fuel sales, recent financial reports show profits have been falling.

In April Tesco said sales had grown by 7% but its operating profits - the actual profit made from selling food - fell by 7%.Sainsbury's also reported a fall in profits in April from £854m to £327m.

What are experts saying?

Predictably, there's a range of opinions about how realistic accusations of greedflation are.

ITV News Economics Editor Joel Hills pointed out some companies have been "raking it in" with oil and gas companies reporting profits 15 times higher than just over a year ago.

He also noted telecom companies are increasing the costs of their phone contracts at a rate higher than inflation.

ITV News Economics Editor Joel Hills says most companies are seeing their profits fall

But overall Mr Hills said these were the exceptions to the rule, with profits falling for the vast majority of companies.

He said: "Most companies are up against it too, where they can they are passing it to their customers, they are not profiteering."

Mr Hills was agreeing with the words of Michael Saunders who used to be one of the people setting the interest rates at the Bank of England.

He said the "overwhelming majority of the rise in inflation reflects cost pressures from energy and other commodities."

But not all people share this view. When announcing the investigation, CMA chief executive Sarah Cardell said: "We recognise that global factors are behind many of the grocery price increases, and we have seen no evidence at this stage of specific competition problems.

"But, given ongoing concerns about high prices, we are stepping up our work in the grocery sector to help ensure competition is working well and people can exercise choice with confidence."

Want a quick and expert briefing on the biggest news stories? Listen to our latest podcasts to find out What You Need To Know.

The head of the European Central Bank, Christine Lagarde suggested earlier this month some companies are engaging in greedflation.

While noting keeping prices high could help some firms recoup losses during the peak of the cost of living crisis she also said: "In some sectors, firms have been able to increase their profit margins on the back of mismatches between supply and demand, and the uncertainty created by high and volatile inflation."Ricky Allman, who owns an independent forecourt, told ITV News says there is plenty of room for price cuts.

He said: "There is no way that we are buying fuel that is 20p a litre cheaper than they are, the savings have been coming down for a while now so I don't understand why the prices aren't dropping across the country.