Greedflation: excessive prices in the name of inflation?
In times of inflation, prices rise. But some companies seem to increase prices more than necessary. Is this greedflation? Comparis takes a look.
31.08.2023
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1. What is greedflation?
Greedflation is a mix of the words greed and inflation. It’s a way of explaining rising prices that are difficult or even impossible to explain in terms of the general rate of inflation.
The term is often used when certain companies or industries push through unjustified price increases. In this case, greedflation means: companies exploit the market situation of inflation and generate excessive profit.
Where does the term “greedflation” come from?
The exact origin of the term is not known. In recent years, it has repeatedly popped up in media and reports — particularly in the USA. US politicians from the Democratic Party in particular have recently drawn increasing attention to the phenomenon.
Greedflation is considered a colloquial term and is rarely used in specialist literature. However, greedflation as a theory is increasingly being tested scientifically.
What’s the difference between inflation and greedflation?
The difference lies in the reason behind rising prices.
| Inflation | Continued general rise in prices based on a price index (in Switzerland, the National Consumer Price Index or the Producer Price Index (PPI)) with a simultaneous reduction in purchasing power. |
|---|---|
| Greedflation | When companies increase the prices of individual goods and services to increase profits above the general level of inflation, under the guise of inflation. |
How does inflation occur?
A temporary price increase, for example due to excessive demand or supply shortages, usually happens before inflation. This price increase can become a precursor to inflation.
However, inflation only occurs if the price increase in one region cannot be compensated by a price reduction in another region, at a later date or by substitute products.
2. Example of possible greedflation: food
There are various factors involved in the pricing of products. It’s therefore not easy to prove unjustified price increases. However, the following signs may be an indication of greedflation. Check carefully if you see such changes in products.
Companies often sell a product, for example biscuits, in normal-sized packaging, but they fill it with less content. Consumers sometimes only realize the extra empty space after they open the packaging.
Our tip: read the fine print – in this case, the weight on the packaging.
Lower quantity, same price? You need to look closely here, too. For example, a pack of mini chocolate bars might contain only 14 instead of 16 pieces. This means a price increase of almost 13%.
Some manufacturers tweak the quality of their products. This way, they can avoid noticeable price increases. Furniture manufacturers, for example, saw panels thinner. When it comes to food, expensive ingredients are replaced with cheaper alternatives. Read the product description carefully. The devil is in the details.
It’s a bit more difficult when it comes to gastronomy. Restaurants, for example, reduce the amount of meat they serve, and instead provide larger portions of side dishes. This lets them increase their profit margins. Talk to the waiting staff if you notice any changes in how much you get when ordering your favourite dishes.
Have you noticed that the price of vegetables is sometimes per 100 grams, and sometimes by the kilogram? This isn’t uncommon among Swiss retailers. For cosmetic products you may also find prices given both per litre and per 100 millilitres. This makes it more difficult to compare prices.
Our tip: use a calculator to compare prices.
In addition, pricing may vary within a chain of stores. For example, the various Migros supermarkets set their own prices and there may also be price differences between Coop stores.
3. Transparency as a response to greedflation
Companies depend on a profit margin. In Switzerland, the pricing of products and services is therefore generally up to the company providing them.
Experience has shown that strong competition results in fair prices. This is because competition between companies forces them to offer competitive prices to consumers. When cheaper alternatives exist, it’s harder for companies to justify higher prices.
Transparency is a prerequisite for effective competition. Comparis believes companies should be required to disclose pricing changes for their products and services.
This is all the more urgent not only because prices are changing rapidly due to inflation, but simply because of digital data analysis options, which are leading to increasing price dynamism in all areas.
“Companies that disclose their prices strengthen customer loyalty and improve their image. And consumers have a clear basis to make decisions, to assume their own responsibility when shopping and to take action against unreasonable prices whilst maintaining their purchasing power.”
Dirk Renkert, Comparis financial expert
4. This is how prices are changing in Switzerland
In recent months and years, there have been sharp price increases in various areas.
Comparis measures perceived inflation in collaboration with the KOF Swiss Economic Institute at ETH. The latest developments and analyses can be found in the consumer price index.
Overview of premium forecasts and analyses
Comparis regularly publishes market analyses in the areas of finance, insurance, health insurance and mortgages:
