Prices and profits after the pandemic
Think tank: IPPR
Author(s): Carsten Jung; Chris Hayes
June 20, 2022
This report from UK think tank IPPR argues that surging profits by some companies could be a contributing factor to rising prices.
While inflation is primarily being driven by global factors, this joint IPPR and Common Wealth report argues that surging profits by some companies could be a contributing factor to rising prices. Contrary to the arguments of the Prime Minister and the Governor of the Bank of England that wage restraint is needed to keep inflation down, the report argues that profit restraint is also required. New analysis shows that the profits of the largest non-financial companies were up 34 per cent at the end of 2021 compared to pre pandemic levels – rising significantly faster than inflation and wage growth. The analysis shows that this increase is being driven by a small number of companies, with 90 per cent of increases in profits accounted for by only 25 companies. The report argues that some firms could have considerable market power with very few competitors, and this could be making the cost of living crisis worse by raising prices beyond what would be economically justified. The report notes that there is a high degree of market concentration in some industries with the highest turnover. This paper serves as a first step to analysing the behaviour of profits in the UK. This is intended to be as a discussion paper to stimulate debate rather than the final word on the issue.