Grabflation? Inflation could be 2.2% lower if companies only implemented necessary hikes

Inflation in 2022 could have been 2.2 percent lower if companies had only raised prices to what was absolutely necessary because of the increased costs, according to a Rabobank study. This could well indicate grabflation - companies secretly driving up prices more than necessary in times of crisis to improve profits - but it could also have other causes, the bank said.

Businesses in the Netherlands saw their profits increase significantly last year. Companies’ net operating profits were 238 billion euros in 2022, compared to 213 billion in 2021 and 201 billion in 2019, before the coronavirus pandemic broke out. “Last year, the net operating surplus relative to the size of the total economy reached its highest level since 2008,” the Rabobank economists said.

At the same time, consumers saw prices increase by around 11 percent. And according to trade union FNV, the higher profits did not even go toward helping employees deal with the incredibly high inflation. Employees watched their purchasing power plummet as shareholders received higher and higher payouts, the union said in a recent report.

According to Rabobank, this could indeed indicate grabflation. “That 2.2 percent is certainly not negligible on an inflation rate of about 11 percent for consumer prices,” Rabobank economist Stefan Groot told NOS Radio 1 Journaal.

But the higher-than-necessary price increases could also have other reasons behind them, he added. “Companies may also have prepared for higher wages. Many collective agreements were not yet concluded last year,” Groot used as an example.

Scarcity may also have played a role in driving prices even higher. “You cannot see this separately from the overheated economy. Suppose a company raises prices less. Then consumers can buy more products. But due to the shortage of raw materials and personnel, the company may be unable to meet demand.” The resulting scarcity automatically pushes prices higher, Groot told the broadcaster.

Rabobank cannot conclusively say that there was grabflation in the Netherlands last year, speaking of a “purely hypothetical calculation exercise intended to indicate the magnitude of the effects found.”