...By Larry John for TDPel Media.
The UK government has launched an investigation into supermarkets to determine if they are responsible for driving up food prices through a phenomenon known as ‘greedflation.’
The investigation was prompted by the Competition and Markets Authority (CMA), the government’s anti-monopolies watchdog, which also provided an update on its study into petrol and diesel prices.
Additionally, the CMA announced a new probe into the groceries market due to the recent surge in prices.
Petrol and Diesel Prices:
According to the CMA, while the invasion of Ukraine by Russia may be the primary cause of rising petrol and diesel prices, the increased costs cannot be attributed solely to external factors beyond the control of retailers.
The CMA suggested that a decline in competition within the road fuel retail market has contributed to the higher prices.
It highlighted that supermarket pump prices in 2022 were approximately 5 pence per litre higher than they would have been if average percentage margins had remained at 2019 levels.
The CMA expressed dissatisfaction with supermarkets for not providing sufficient evidence during the investigation.
The CMA acknowledged that global factors have been the primary drivers of increased grocery prices.
However, it emphasized the need to investigate whether weak competition within the grocery sector is exacerbating the problem.
At this stage, the CMA has not identified specific competition concerns in the grocery market but aims to ensure that competition functions effectively to maintain consumer choice.
Sarah Cardell, Chief Executive of the CMA, emphasized the importance of examining the grocery sector due to ongoing concerns about high prices.
Analysis and Economic Perspective:
The CMA’s findings regarding the road fuel market are likely to reinforce claims that large companies are taking advantage of the cost-of-living crisis through ‘greedflation.’
However, Michael Saunders, senior economic advisor at Oxford Economics, suggests that such instances of greedflation appear to be less prevalent outside the energy sector.
He points out that, excluding oil and gas, company profits as a share of GDP have decreased significantly.
While there may be individual cases of widening corporate profits, they do not reflect the overall trend, as profits in the manufacturing and service sectors have fallen relative to turnover and aggregate GDP.
The government’s investigation into supermarkets aims to determine if they are contributing to rising food prices through ‘greedflation.’
The CMA’s study on petrol and diesel prices suggests that weakened competition within the road fuel retail market has played a role in higher costs.
Furthermore, the CMA has initiated an examination of the grocery sector to ensure that weak competition is not exacerbating the problem of soaring prices.
While claims of ‘greedflation’ persist, it is important to consider the broader economic context and the overall trends in corporate profits across sectors.