Greedflation in Canada

How rising corporate profits are shrinking Canadian budgets

Inflation is a whole lot more than just hot air. Rising costs erode your savings and purchasing power, creating a heightened sense of vulnerability in your wallet and bank account. If you're feeling the pinch, you’re not alone. 

But what if I told you that it’s not inflation but corporate greed driving up the cost of living and consumers (you) are footing the bill? It’s a phenomenon called “greedflation.”

What is greedflation?

Greedflation is where companies take advantage of inflation to raise prices more than necessary — using brand patches to artificially inflate that hot air balloon rate from dropping.  

This concept of greedflation can help explain the financial squeeze you and millions of Canadians still feel despite rosy economic forecasts. 

Inflation is falling but corporate profits are punishing consumers

Inflation has been a constant boogeyman since the pandemic with the year-over-year inflation rate reaching 7.7% in 2022, according to Statistics Canada. 

To put that into perspective, in 2022, the average price of a loaf of bread in Canada was around $2.50. The year prior, that same loaf would have cost $2.30, a one-year price hike of 20 cents. Today that same loaf costs around $3.31, a total increase of 24.5% in just two years. Now, do that math across, not only your groceries but clothing, fuel costs, entertainment and more, and you start to see the problem — money doesn't go as far as it used to.

This inflation was the direct result of the coronavirus lockdowns and subsequent logistical logjams that hurt international shipping immediately afterward, and Canadians felt the biggest pinch at the supermarket or at the gas pump.

While inflation is back in check, with the official inflation rate currently pegged at 2.3% as of May 2024 (inflation in Canada averaged 3.15% from 1915 to 2024), and Canadians' costs for many goods and services are declining, the price of certain industries remains high, thanks to greedflation. 

Greedflation is a term dismissed by economists, academics and government officials as 'a convenient political meme,' with the Bank of Canada stating that this phenomenon, also known as markup growth, accounted for less than 10% of inflation in 2021.

But that stance is beginning to falter as economists, such as US Federal Reserve Vice-Chair Lael Brainard, suggest that the ‘price-price spiral’ was the main driver of inflation, meaning companies raise prices far over costs (i.e. greedlfation).

Another 2023 study by Groundwork Collaborative found that corporate profits accounted for 53% of inflation. Based on US Commerce Department data, companies didn't hesitate to use declining inflation to boost prices (and profits).

Corporate profits drove 53% of inflation during the second and third quarters of 2023 and more than one-third since the start of the pandemic. Before then, profits only drove 11% of price growth.

“Businesses were really, really quick, when input costs went up, to pass that on to consumers,” said Liz Pancotti, an author of Groundwork's report. And the study can even put a number on how much corporate greed has hindered the global economy — the thing they’re trying to grow.

According to Groundwork, because of corporate profits, inflation was in the 7% to 9% range instead of the 5% to 7% range. And the situation isn’t improving in 2024. According to July 2024 data from FactSet, a US-based financial data company, the profit growth rate for S&P 500 companies rests at 9.8%. This represents the highest year-over-year earnings growth rate since Q4 2021, indicating a significant surge in profits.

Let's look at three key areas of greedflation compared to other areas that haven't seen the impact to know what the true fingers are in our collective wallets.

Food costs have improved but remain elevated

Increases in food prices are being attributed to disruptions in the food supply chain caused by the pandemic and challenges in the labour force. 

Major Canadian grocery chains raised prices almost across the board, with consumers left to foot the bill for increased shipping costs (not the precious profit margins). And with the biggest names (think Loblaws, Sobeys, Metro, Costco and Walmart) controlling 76% of Canada’s grocery market share, there’s really nothing we can do about it. 

While general food inflation peaked at 8.8% in 2022, it started declining late last year. However, food prices remain elevated above normal levels, with Canadians struggling to afford the cost. 

While general food inflation peaked at 8.8% in 2022, it started declining late last year. However, food prices remain elevated above normal levels, with Canadians struggling to afford the cost. 

According to Canada's Food Report by Dalhousie University, the University of Guelph, the University of Saskatchewan and the University of British Columbia, food prices in 2024 are projected to increase by 2.5% to 4.5%, compared to 5% to 7% in 2023. The average family of four is expected to spend $16,297.20 on food in 2024, $701.79 more than the previous year.

Here’s a sample of how food prices have been rising:

Notice how uneven the price rises are and how goods that require additional packaging or processing, like baby formula, are disproportionately impacted. That’s the impact of greedflation: Companies streamlining their budgets to maximize profits and pass on the extra cost to consumers like you and me. 

There’s no end in sight either, as prices continue to increase — that tasty beef sirloin you bought for a fun, neighbourhood backyard BBQ in 2019 cost around $16/kg. At the time, you opted to be a good neighbour and share the wealth. Five years later, in April 2024, you’re forking over $21.46 for that same sirloin. The very next month, it’s $2.40 more per kilo, or $23.88 and suddenly your backyard BBQ extravaganza needs a $5 entry fee to break even. 

All told, the average cost of food purchases from stores in Canada is up 22.5% year-over-year, an increase that represents the fastest climb in food inflation in over 40 years. 

In fact, the largest periods of food inflation in Canadian history have occurred since late 2021, with price increases for food sold in stores outpacing headline consumer inflation. 

In August, September and October 2022, food price increases exceeded 10%. 

Let’s compare that with how prices rose over the same period of time six years ago:

Notice the increased price stability? And the stability of 2018 is pretty much par for the course for the last 45 years or so as prices remained largely dependent on the official inflation rate, which stood at 2.5% in summer 2018.

And corporate price fixing is no myth. The Loblaw Companies and its parent company, George Weston Limited, were recently ordered to pay a staggering $500 million fine for their part in a bread price-fixing scheme dating back as far as November 2001. No wonder the price of a loaf of bread is so high.  

Elevated fuel and energy prices

Canadians are still paying above-inflation fuel prices. Gas prices declined by 2.8% in the first months of 2024 but are now rising, with Canadians paying 6.1% more at the pump in April. Statistics Canada shows Canadians see the most significant price increases in fuel and other energy products — paying 10.1% more on fuel and 5.6% more on gasoline than last year.

Gas inflation reached its peak at 68.2% in 2021 but has since retreated. Energy inflation has also significantly improved thanks to improvements in global shipping infrastructure and increased oil production both domestically and in the US These factors counterbalanced the artificially high oil prices set by the Organization of the Petroleum Exporting Countries (OPEC) in 2022 when they limited oil production to protect member countries' economies.

And the news showcases just how real the threat of corporate greed is to consumers from oil industry execs. 

Scott Sheffield, founder and CEO of Pioneer Natural Resources, one of the largest oil producers in the United States, has been charged by the Federal Trade Commission (FTC) with colluding with OPEC "to organize anticompetitive coordinated output reductions," otherwise known as price fixing.

The price of almost everything is soaring

It’s not just gas prices that continue to climb. Costs are unevenly rising across the board.

No wonder corporate executives are raking in record profits. And believe me, they are records. 

Year-end data from Statistics Canada shows that corporate profits in Canada remained high in 2023 despite economic growth stalling, unemployment rising and consumer demand stagnating.

Total after-tax corporate profits for the year were $577 billion, a 3% decrease from the record levels in 2022. However, this is still significantly higher than the $200 billion (or 55%) increase compared to 2019, the year before the COVID-19 pandemic.

Opponents of greedflation often cite complex international processes that prevent corporate ‘gaming’ of the system from contributing to inflation. Similarly, they argue that many outrageous profits are related to financial sectors, not goods and services.

But as the Centre for Future Work noted earlier this year, it's not just financial services where profits are soaring. Statistics Canada reports financial data for 53 sectors (39 non-financial and 14 financial). In 2023, profit margins widened in 24 industries, including retail, motor vehicle dealers, general merchandise and supermarkets. These sectors faced supply chain disruptions, shortages and increased prices.

And there’s no end in sight. Canadian economists predict prices will rise again in the second half of 2024 and into 2025. Here’s a quick breakdown of how many business respondents indicated they plan on raising prices in 2024:

Industries

Companies are looking to raise prices regardless of their trade:

• Retail trade: 86.1% 
• Manufacturing: 83.8%
  
•  Entertainment and recreation: 71.3%
•  Other services: 68.4%
  

Companies

Bigger companies are more likely to raise prices than smaller ones, but the majority plan to hike prices in 2024:

• Up to 20 employees: 78.9%
• 20 to 50 employees: 84.7%
  
• 100+ employees: 85.1%
  

Geography

Prices are rising and it doesn’t matter where you live:

• Urban: 73.2%
• Rural: 80.2%
  

While city slickers are better insulated from price changes than rural communities, they can still anticipate nearly three-quarters of retailers hiking prices, shortly. Additionally, the larger the company, the more likely prices will increase.

And it's not like consumers aren't holding up their end of the bargain — far from it. Consumer spending is at an all-time high. Rather, corporations are changing their business practices to reflect their ‘profits over people’ ethos by switching to a drop-shipping model.

Drop shipping is a business model where the retailer does not maintain inventory. Instead, when a customer orders, the retailer buys the item from a third-party supplier, who then ships it directly to the customer.

Instead of producing products in North America, corporations purchase lower-quality goods in bulk from countries like China, India and others. This approach helps decrease companies' stock levels, as they now prefer smaller shipments for existing orders rather than replenishing their stock.

What does this mean for you? Higher prices on goods that cover all aspects of your life, from toys and electronics, to appliances and furniture. According to the figures, even books cost around 9.2% more.

This is without mentioning the housing crisis gripping the cities and provinces. But that’s another can of worms we don’t want to open today.

How to fight back against greedflation

In the era of greedflation and corporate profiteering, financial education is more important than ever. Equip yourself with knowledge and tools to navigate the complex financial landscape, protect your finances and make informed decisions for their economic well-being.

Beyond financial education, the following strategies can help protect your finances:

• Develop a comprehensive budget that accounts for changes in costs and regularly review and adjust spending to maximize resources
• Research alternative or low-risk investment products, services and retailers for more affordable options
  
• Don't be afraid to negotiate with service providers, landlords, or retailers to ensure you're paying a fair price
  
• Focus on paying down existing credit card balances
  
• Look into high-yield savings accounts to accelerate savings to help create an emergency savings to cushion against unexpected financial shocks
  
• Invest in inflation-resistant assets like gold, silver or inflation-indexed bonds to diversify your finances
  
• Support businesses that are dedicated to fair pricing and responsible behaviour
  

Finally, Canadians can use advocacy and collective action to drive positive change and hold corporations accountable for their actions. This can include shifting your spending to companies that demonstrate a commitment to fair pricing and responsible corporate behaviour, contacting local, provincial and federal representatives to voice your concerns about the impact of greedflation, or even joining local consumer advocacy groups to help improve community financial education.

Don’t fall victim to greedflation and the Gekko effect

Protecting yourself from greedflation is essential because the phenomenon isn’t linked to a few rogue actors. 

Greedflation is just one result of what’s known as the Gekko effect.

The Gekko effect is a byproduct of a negative corporate culture. Professor Andrew Wu from the Massachusetts Institute of Technology (MIT) coined the term in 2016 to describe the influence on corporate behaviour in a world where fans of Michael Douglas' iconic character from the 1987 film Wall Street, Gordon Gekko, have grown up and now call the shots.

According to Wu's research, due to emotional conditioning, strong corporate cultures lead to better performance than weak cultures. 

But not all strong corporate cultures and values are positive — some can transmit negative values that increase the likelihood of financial misconduct at the lower levels. Us regular human folks begin to prey on each other in the hopes of advancement and a bigger pay day.

So, inform yourself about prices, shop for the best financial rates and educate yourself on budgeting to help protect yourself from corporate greed. 

The best way to stay economically safe from the evil of corporate greed is to be financially smart.

Cory Santos Finance editor

Cory Santos Finance editor

Cory Santos is a finance writer, editor and credit card expert with nearly a decade of experience in personal finance. Cory joined Wise Publishing from BestCards, with bylines in numerous print and digital publications across North America, including the Miami Herald, St. Louis Post-Dispatch, Debt.ca, AOL, MSN and Medium as well as financial podcasts like KOFE Talk.

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