Greedflation – Do corporations use inflation as an excuse for inflated prices?

• Evidence of greedflation can be found primarily where companies have market power
• Studies show corresponding effects
• Whether this is actually opportunistic pricing policy is controversial

Greedflation: What is behind the term?

Greedflation – sometimes referred to as greed inflation or profit inflation – describes a mechanism in which companies use price increases not only to cover increased costs, but also to expand their profit margins. The term does not stand for normal entrepreneurial activity in an environment of rising input prices, but rather an opportunistic pricing policy: prices are increased more than cost increases require – and do not decrease even when costs fall again. The concept differs from cost-driven inflation, i.e. cost-push inflation, in that the inflation impulse is not triggered externally by energy or raw material shocks, but rather internally by companies’ decisions to exploit leeway.

The debate about these types of price increases gained momentum again some time after the ECB President Christine Lagarde publicly warned in spring 2023 of a “tit-for-tat” dynamic in which rising corporate margins and wage demands could fuel each other. Shortly afterwards, ECB Executive Board member Isabel Schnabel noted that in some sectors companies had expanded their profit margins on the back of the uncertainty created by high and volatile inflation.

What the data shows: margins at the expense of consumers

At the macroeconomic level, there is strong evidence that rising corporate profits have contributed to inflation. An analysis published by the SUERF Institute shows that unit profits in the Eurozone contributed significantly to the increase in the GDP deflator – a measure of domestically generated inflation – in 2022 and 2023, although there are significant differences between individual countries. The ABN Amro Research department comes to a similar finding in a 2023 analysis: corporate profits became a larger driver of inflation than wages from the second half of 2022. For Germany, a study by the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation shows that sharp increases in corporate profits in certain sectors have contributed significantly to inflation. The nominal unit profits were particularly noticeable in construction, trade, transport and hospitality as well as in parts of the manufacturing industry. At the end of the second quarter of 2023, the overall economic nominal unit profits were around 25 percent above the 2019 level. According to the IMK, an increase of less than eight percent would have been compatible with the ECB inflation target during this period.

At the company level, the findings are also increasing in individual sectors. An analysis by the Handelsblatt Research Institute of six major branded goods manufacturers showed that Mondelez’s profits rose by almost 25 percent between 2021 and 2024. Beiersdorf increased its profit in the consumer goods business by almost 48 percent – both in a period in which raw material prices fell again after their peak in 2022.

Raw material prices are falling – prices are not

The core of the greedflation thesis lies not in the increase in prices charged by companies during a cost shock, but in what happens afterwards. A study published in Economics Letters in February 2025 shows that profit margins continued to expand even though raw material prices were already falling again. This suggests that upward price adjustments occur more quickly than downward price adjustments – a phenomenon known in economic research as asymmetric pricing.

The ECB has openly identified this mechanism in its data: The annual increase in unit profits peaked at 9.4 percent in the fourth quarter of 2022 and then gradually fell to 2.5 percent in the fourth quarter of 2023. The ECB predicted in its March 2024 projections that unit profit growth would turn negative in 2024, thereby partially buffering rising wage costs. This implies a delayed but ultimately onset of normalization – but not that margin expansion did not occur during the cost shock.

Economist Paul Scanlon described the theoretical foundation for this dynamic in a model published in Economics Letters in 2024. His argument: In times of high price uncertainty, consumers find it more difficult to judge whether a price increase applies to an individual good or to the general price level. This uncertainty increases companies’ market power and gives them scope for higher markups – an effect that is reinforced by inflation itself.

Greedflation criticism

Despite these findings, the empirical evidence for widespread greedflation is controversial. Lea Bernhardt and Tomaso Duso from DIW Berlin wrote in a commentary in the DIW Weekly Report from June 2023 that both the theoretical justification and the empirical evidence for the thesis were weak. Cost increases would usually be passed on immediately. If costs subsequently fall, firms with market power would have no incentive to quickly and fully pass on these declines. In the short term this would result in higher profits, but in the longer term the margins would return to normal.

Bernhardt and Duso also question the significance of aggregated profit data: they are unsuitable for proving causal relationships. The profit share in value creation could increase even if markups remained constant – depending on how interchangeable production factors were and how input prices and labor costs would develop. A study by the Banca d’Italia in 2023 showed that in Germany there were constant markups in industry and manufacturing, while the profit share still increased.

There is also the question of the correct comparison size. Rising wage costs, which have a delayed effect on price increases, could explain part of the apparently excessive margins – this would not be a case of opportunism, but of forward-looking calculation. This is also suggested by an analysis from the USA, which found no significant correlation between markup changes at the company level and price changes at the industry level.

Where margins rose particularly sharply

Greedflation is also not a cross-industry phenomenon of the same intensity. Both the IMK and the SUERF analysis show significant differences between sectors and countries. The findings are most striking in the food and consumer goods sectors as well as in parts of the energy industry, where companies with market power have broader scope for setting prices than in more competitive markets. In the food retail sector, the concentration on the manufacturer side has changed the negotiating position with trading partners and consumers. Brands like Milka (Mondelez) or Nivea (Beiersdorf) were able to push through price increases that exceeded the cost development – at the same time their profits rose significantly more than input costs. This finding fits with the thesis that market power and brand trust provide companies with a buffer that they can more easily exploit in an environment of collectively rising prices without encountering demand resistance.

Political reactions

The greedflation debate quickly gives rise to political demands for price controls. However, DIW Berlin considers this to be hardly practical. There is a lack of possibility to decide, based on evidence and in a timely manner, where which controls should be used and how highly regulated prices should be. Bernhardt and Duso reject the fact that the German energy price brakes in 2023 were seen as a successful model for price controls: They are a subsidy for 80 percent of previous consumption – not a price control. Consumers continue to pay market prices; the state only provides a subsidy.

The ECB also sees the solution not in government intervention in price setting, but in normalizing profit development via the market process. Their projections assumed that companies would cushion rising wage costs from 2024 through falling margins – an adjustment movement that the ECB factored in as part of the disinflation path. For competition authorities, however, there is a broad consensus: in phases of high inflation, they should monitor the price setting of companies with market power more closely, even if inflation itself does not represent a primary competition problem.

Paul Schütte, editorial team at finanzen.net