Inflation has always been the intriguing topic for the consumers, the economists, the politicians and most importantly the corporates. Every one holds a different reason to be excited about this topic.
Consumers are rather unhappy with the term as its pinch is harshly felt disrupting their budget planning. Economists keep on brainstorming to find out the reason behind this phenomenon and come up with new theories. Politicians as an opposition party makes it their political agenda to target the ruling party. Corporates are the ones who make the best out of it multiplying their profits renaming inflation, GREEDFLATION.
Corporate profits in the United States surged by 4.1% from the previous quarter to $2.709 trillion in the third quarter of 2023, Corporate Profits in the United Kingdom was 156619 GBP Million in the second quarter of 2023 which was the highest so far as per the report by United states corporate profit, trading.com. An IMF working paper by Hansen, Toscani and Zhou (June 2023) states that the corporate profits now account for half of all euro area inflation. Economic Policy Institute US company studies show that in the US, the UK and Australia, excess corporate profits drove 54%, 59% and 60% of inflation, respectively. All these data points towards a rise in corporate profits in the post pandemic period.
Corporate profits lead to surge in prices creating superlative inflation. This is not just the scenario of developed countries since the developing countries are also catching up the trend.
How could the five trillion economy named India could slow back. She also joined the arena of Greedflation in recent years. The average corporate profit contribution to inflation was 11% which grew to 54% in the past few months.
In general, we are aware of demand pull and cost push inflation. Demand pull inflation was felt during and after the pandemic, where there was too much demand chasing too few goods due to shortages and break down of supply chain. On the cost push side, Input cost rise mainly labour’s demand for wages based on their expectations leads to wage spiral inflation. In addition to these causes of inflation, a new reason was studied by Isabella Weber economist from Massachusetts University termed as Sellers inflation, now popularly known as Greedflation. After the pandemic when the general prices were already soaring high due to demand supply distortion, corporates increased their prices further, not to cover up their costs but to increase their profit margins or the mark up price. This created profit spiral inflation. It was a greed driven price rise to take advantage of the existing situation.
Now the question arises, whether this bulging corporate profits are good for a developing economy like India where the top 10% of the Indian population holds 77% of the total national wealth, 73% of the wealth generated in 2017 went to the richest 1%, while 670 million Indians who comprise the poorest half of the population saw only a 1% increase in their wealth.
Corporate profit rises are seldom reflected in wage rise or as a contributor in the economy, but definitely reflected in capital accumulation. Under such conditions of capital accumulation, the inequality between the richest and the poorest are bound to widen further putting immense pressure on the huge population in the bottom of the pyramid who are already facing the challenges of stagflation in India.
Dr Trishna Sarkar, Asst Prof, Dept of Economics, Dr BhimRao Ambedkar College, University of Delhi.
