Using inflation as an excuse to raise prices may expand your profit margin quickly, but it will take a toll on your business in the long run.
71% of Spanish consumers would stop buying from companies that use this practice, which could cause reputational damage that will be difficult to recover from.
Maintenance and production costs have risen, but do they justify the skyrocketing prices we are experiencing? The data suggests that some companies may be in a spiral of greedflation.
Start of marked textSHARE! Taking chad email list advantage of inflation to generate record profits at the expense of consumers is not a good idea. Here are 3 keys to avoid falling into that trap.End of marked text
After the pandemic, the economic recovery was accompanied by a spectacular rise in inflation, which in Europe reached peaks of between 9 and 11%. Consumer prices soon began to rise, perhaps beyond what was reasonable.
A report by the UK's Institute for Public Policy Research has sounded the alarm: profits of large companies soared by 34% at the end of 2021 compared to pre-pandemic levels. They have therefore grown much faster than inflation and wages.
In Spain, many entities also reported record profits during 2023, partly due to an excessive increase in prices taking advantage of their control of the market, a phenomenon already known as greedflation .
Greedflation occurs when businesses charge excessively high prices for goods or services that are in high demand, taking advantage of an inflationary environment. It is more common in markets where there is a certain monopoly dominance because consumers have few alternatives.
A study by the Roosevelt Institute found that corporate profit margins have fallen from around 5% over the past few decades to nearly 10% in the past two years .
Of course, rising corporate profits can be due to a number of factors, such as increased demand or lower production costs. However, greedflation is also contributing to excessively widening margins.
