From King Dollar to potato market, greedflation driving up inflation woes

Illustration: TBS

Businesses are allegedly manipulating prices of everything in high demand—from the King Dollar to potato and from egg to onion. Who is engaged in this monstrous cycle? From bankers to retailers of the dollar and the essential commodities. Why? The only motive is to make excessive profits by exploiting inflation — a situation described as greedflation in financial media worldwide—adding to misery for millions of people and making the authorities' battle against inflation more difficult.

Greedflation refers to a situation where corporate greed drives inflation further. Big companies use inflation as an excuse to inflate the price of their products excessively far more than their cost of production, further fueling the price spirals. Does this make greedflation the elephant in the room? 

In developed economies, analysts are pointing fingers at corporations for greedflation, which they have identified as the true culprit for exacerbating inflationary pressures. The term does not figure much in talks on inflation in Bangladesh, though traders' greed is blamed for abnormal price hike of specific items during festivals or sudden peak in demand for or decline in some items for reasons like disasters or pandemics. 

We see sudden surges in the price of chickpea or date or sugar or brinjal surges in Ramadan, cucumber or lemon ahead of Eid-ul-Adha – or saline as a supply crisis emerges now with a burgeoning dengue outbreak. 

But the corporate avarice appeared in talks, maybe for the first time in Bangladesh, when the egg market turned volatile last year, with wholesalers and associations of small farm owners blaming corporate poultry farmers for controlling supply and dictating price. Big poultry companies, backed by their own hatcheries and feed facilities, forced small farmers out of business and took control of the farm chicken and egg market.

Competition Commission took the allegations into cognizance and summoned leading poultry companies to a meeting, persuading them to lower the prices. The agency also initiated market drives and fined traders for selling eggs at prices higher than the agreed rate.

The egg crisis reappeared in recent months, prompting the government to allow the import of eggs for the first time in the country's history. Smuggled Indian eggs were sold in the city's kitchen market till the mid-90s and over the decades, the local poultry industry saw spectacular growth, producing roughly 4 crore eggs a day mostly in individually-owned small households and backyard farms mushroomed all over the country. Then the corporate groups appeared in the scene, horizontally expanding their business across the whole supply chain—from hatchery to retail.

High prices of feed, day-old chick, vaccines and medicine forced many small farmers to close shops during Covid when poultry demand fell. Industry insiders think that local egg production, which grew to 6.4 crore a day in FY23 from 2.79 crore in FY14, falls short of the requirement now – leading to the recent price hike.

Opening of import earlier helped ease two other fresh kitchen items—green chilli and onion.

Added to the list of volatile prices is potato, with the price soaring to Tk50 per kg, double the rate seen last month. The most consumed vegetable grows in abundance, surpassing the requirement in the past years, official data claims. But traders contradict the figures, saying potato production fell last season, leading to a shortage and substantial price hike.

The government last week capped retail prices of onion, egg and potato for the first time in the country's history, but the retail market continues to defy the set rates, prompting the government agencies to launch drives in the market. 

The competition commission even inspected the cold storage in Munshiganj to take stock of potatoes and set a rate for a 'cold storage' gate like the mill-gate price set for edible oil and sugar. It also asked the district administration to make sure the government-fixed rates are followed. But in vain. Consumers are paying much higher than the rates set by the government.  

There is no research on how much of the persisting inflation close to 10% – food inflation's 12-year peak at 12.54% in August – has been caused by corporate greed. Other than those few listed in the stock market, companies in Bangladesh do not make public their loss, profit and growth figures, which could have given a clue as to what percentage of their growth comes straight from sales and how much they made out of soaring prices.

But in developed economies, windfall profits of big companies are coming under the regulators' radar. Rights groups are also scrutinizing the magic growth numbers of companies and asking how they are generating so huge post-pandemic profit amid complaints of disrupted supplies and high prices of inputs.

Earlier this year, European Central Bank President Christine Lagarde identified widening corporate profit margins to be a more powerful contributor to the euro zone's inflation risks than the wage-price spiral.

722 of the world's biggest corporations together raked in over $1 trillion in windfall profits each year for the past two years amid soaring prices and interest rates, while billions of people are having to cut back or go hungry, Oxfam and ActionAid said in July analysing Forbes' "Global 2000" ranking.

Food and beverage corporations, banks, Big Pharma and major retailers also cashed in on the cost-of-living crisis that has seen more than a quarter of a billion people in 58 countries hit by acute food insecurity in 2022, global charity giants said, asking for permanent windfall taxes on windfall profits across all sectors. 

"People are sick and tired of corporate greed. It's obscene that corporations have raked in billions of dollars in extraordinary windfall profits while people everywhere are struggling to afford enough food or basics like medicine and heating," said Oxfam International interim Executive Director Amitabh Behar.

"Big business is gaslighting us all —they're hiking prices to make monster profits, plundering people under the cover of a poly-crisis."  

Such concerns are gradually gaining ground among global financial analysts, who are alerting policymakers to the contribution of corporate greed to the soaring inflation all over.

A consensus is growing in Europe, the United States and Australia that greedflation is the "true culprit" putting the world into an uphill battle against inflation, disproportionately impacting low- and middle-income people, slashing consumption and ultimately slowing down growth. It leads to unsustainable market conditions which policymakers find hard to manage like the one faced by financial authorities across the economies.

Albert Edwards, a global strategist at the 159-year-old French investment bank Société Générale, in a blistering note last April on the phenomenon that has come to be called Greedflation. He said corporations, particularly in developed economies like the US and UK, have used rising raw material costs amid the pandemic and the war in Ukraine as an "excuse" to raise prices and expand profit margins to new heights, according to a Forbes report.

Furthermore, Edwards wrote, in the Global Strategy Weekly, that after four decades of working in finance, he's never seen anything like the "unprecedented" and "astonishing" levels of corporate Greedflation in this economic cycle.

But counter argument is there too. Blaming the greedflation alone for exorbitant price shocks may hide structural problems in the economy.  

Corporate presence is all over and there is no way for us as well to stay immune to such impacts of greedflation, which often makes its influence felt and frustrates authorities' drive to discipline the consumer goods market.      

The regulatory authorities such as the Central Bank, Bangladesh Competition Commission and National Consumer Rights Protection Directorate are struggling to keep the exchange market and essential market in check through policy steps and physical drives.  

Bangladesh Competition Commission has filed 44 cases against a host of individuals and organisations, accusing them of creating an artificial crisis that led to abnormal hikes in prices of items like rice, flour, eggs, poultry and toiletries, according to media reports. The commission began the hearing of the cases on 26 September.   

The Competition Act, 2012, does not allow any person to enter into any agreement or collusion directly or indirectly in respect of production, supply, distribution, storage or acquisition of any goods or services — which causes or is likely to cause an adverse effect on competition or creates monopoly or oligopoly in the market.

There is no dearth of laws in favour of consumers. At least a dozen or more laws have been made to protect consumers. However, consumers are still not protected due to mainly lack of efficient enforcement of those laws.

Companies that were sued for the manipulation of the prices of essentials did not bother about the law. Their intention to make excessive profits has buried their logical minds in times of crisis which people never experienced in recent decades.

The volatile dollar market is another example of manipulating of the rate to make excessive profits.  As the forex reserve started to plummet from $48 billion in the middle of last year  

Bangladesh Bank last week asked 10 banks why disciplinary action should not be taken against them for buying and selling dollars at prices higher than the rates fixed by the authorities.

A special inspection of 13 banks concluded recently found irregularities in buying and selling dollars. A member of the inspection team told TBS on condition of anonymity that some banks bought dollars at Tk114 and sold them at Tk120, according to a TBS report. 

This has raised an important question. Why bankers do not follow the exchange rate fixed by the Association of Bankers Bangladesh and the Bangladesh Foreign Exchange Dealers Association—the two bodies are also run by the bankers themselves. Is it because of the intention to make excessive profits from a volatile dollar market?

Isn't it an instance of corporate greed? Can the competition commission be adequately armed to tame the greedflation both in commodity and financial markets?   

Reality shows it is not an easy task for the directorate legally empowered to protect consumers' rights to deal with this newly-revealed phenomenon that makes things more complicated for them.

Those who are making excessive profits may have counterarguments to defend themselves. But are their arguments rational? It is the duty of the regulatory bodies to examine and take action accordingly to protect people from their greedflation in times of exorbitant inflation. Without fighting greedflation, if there is any in the market, it is a herculean task to tame inflation.