The Front Page: Are businesses pushing up prices to take advantage of inflation?

Inflation continues to put pressure on household expenses. Photo / 123rf

It’s no secret the cost of living has skyrocketed over the last year, amid high levels of inflation.

This was reflected in the Reserve Bank raising the Official Cash Rate to 5.5 per cent, as Governor Adrian Orr continues trying to put a lid on rapidly increasing prices.

While inflation has been attributed to a range of external pressures and Government spending, unions in the United Kingdom have started to attribute some of these price rises to corporate greed.

Using the phrase “greedflation”, research by the UK trade union Unite suggests that average business profit margins rose from 5.7 per cent in 2019 to 10.7 per cent in 2022.

Asked on The Front Page podcast whether something similar could be happening in New Zealand, NZ Herald Wellington business editor Jenée Tibshraeny says seeing businesses raise prices pre-emptively is not surprising.

“If you’re a business and all the forecasts say that inflation is going to remain strong for another year or two, you are going to put your prices up pre-emptively, right? You’re preparing for that. If you’re seeing your costs rise, you’re also going to hike prices.”

The question underpinning this is whether some businesses are increasing prices pre-emptively more than they need to.

“Basically, do they think inflation is going to be worse than it is, or are they being opportunistic by increasing prices because they can get away with it?”

This is also driven by a shift in consumer behaviour in that shoppers are also willing to pay more given the broader narrative that inflation is so high at the moment.

“Some people, particularly those on the left, are saying that businesses are taking the Mickey,” says Tibshraeny.

“Whether they are or aren’t is categorically difficult to say, and I think it really depends on the sector.”

Tibshraeny says that critics of the greedflation theory often point out that it isn’t a matter of corporate greed, but rather a case of whether there’s enough competition in the market.

“Critics say this isn’t about businesses being greedy. This is literally just about a lack of competition. So they say, we need to look at whether we are creating competitive markets or not … [given] there isn’t much competition in banking, supermarkets, insurance and airlines … I think those are the sectors we need to look at.”

So, how much longer will inflation last? Will the Government’s Budget exacerbate the cost of living? And what is the single biggest issue that will affect the economy this year?

Listen to the full episode of The Front Page podcast on the latest OCR decision and the impact this is likely to have on inflation.

The Front Page is a daily news podcast from the New Zealand Herald, available to listen to every weekday from 5am.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts.