'Greedflation': The sectors in Spain exploiting inflation to put prices up

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'Greedflation': The sectors in Spain exploiting inflation to put prices up
The Iberdrola headquarters in the northern Spanish Basque city of Bilbao. Energy companies have put up their prices in Spain way above their additional costs. (Photo by ANDER GILLENEA / AFP)

A report by the Bank of Spain has found that in the past two inflation-hit years certain businesses and companies increased their prices by much more than their costs had risen, a trend that's been dubbed "greedflation".


During this prolonged period of inflation, many companies have argued that they had no choice but to increase their prices in order to cover the rising cost of energy and other production costs.

But doubt has been cast on these claims after a recent report by Banco de España found that some Spanish companies took advantage of widespread inflation to increase their prices by much more than their costs have risen, in effect passing on their costs to consumers already struggling with inflation.

The report concludes that many companies "passed on a substantial part of the increase in their production costs to selling prices". And this ended up affecting sales, the bank discovered, which fell because consumers were forced to reign in their spending when the price of products went up.

The worst offenders

The findings focus on the price rises on a sector by sector basis. In what probably won't come as a surprise to many, the biggest culprit was the energy sector. According to the report, it was Spain's energy companies that benefited the most from price increases. In the refining sector, for example, costs rose by 50 percent but prices grew by 67 percent on average.

The worst offenders, however, were electricity and gas companies. Their production costs, which have experienced volatility amid the war in Ukraine, something company bosses repeatedly used as justification for price rises, were 56 percent higher than a year earlier (2021-2022) but prices for consumers in Spain went up by almost 90 percent in some cases.

But Spanish energy companies were not alone in taking advantage of inflation to boost profits. Transport and storage companies, as well as the hotel and catering industries, also increased prices above their costs, "albeit more moderately", according to the report.


Another sector that stands for rising prices above costs, albeit to a lesser extent, is the hotel and catering sector. Between 2021 and 2022, hospitality businesses saw their costs rise by 6 percent but increased their prices by up to 9.3 percent, meaning that popping out for a beer or coffee on the terrace in Spain has become noticeably more expensive.

Many in Spain's hospitality industry have hiked prices above extra inflation costs, but nowhere near as much as the energy sector. (Photo by JOSE JORDAN / AFP)


Costs in the transport and storage sectors did not actually go up at all. What these companies have to pay for providing their service - especially fuel - actually fell by 2.4 percent. Yet, the prices they charge consumers increased by almost 4 percent. This is particularly striking because in March 2022 thousands of lorry drivers went on strike for several days to complain that they were working at a loss. Yet according to data from the Bank of Spain their prices rose more than costs did.

The report also shows which sectors and industries raised prices by the least: namely the agriculture, textile and food sectors.


Yet some feel that the justifications made for these price rises by companies, usually a combination of the energy shock caused by the war in Ukraine, rising production costs, and disrupted supply chains during the pandemic, are excuses to hide behind profiteering.

Bloomberg financial journalist Tracy Alloway coined the phrase "excuseflation" to describe it. In the UK, it has been termed 'greedflation'.

In its report, the Banco de España points to the combination of price rises and companies taking advantage of "the strong recovery in demand after the lifting of restrictions" following the Covid-19 pandemic in order to maximise profits and make up for lost time and money.


The Spanish supermarkets that have put up their prices most

Another sector that many in Spain have long suspected of price gouging is the supermarkets. In fact, back in January the government itself accused certain companies of "profiting" from price increases.

According to figures from Organización de Consumidores y Usuarios (OCU), Spain's main consumer watchdog, two Spanish supermarkets have put up prices the most: DIA and Mercadona, where the average rises are between 10 percent and 15 percent.

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Of the two chains, DIA has raised prices more: by 17.2 percent in its Dia and Go establishments, and by more than 16 percent in the rest of its supermarkets. Prices in Mercadona are up by 16.1 percent.

This also has a knock on effect on the market because DIA and Mercadona are the two leading supermarket chains in Spain with the largest market share. If they put up prices, other smaller supermarkets are likely to follow their example.

Mercadona is Spain's leading chain, with a 19.9 percent market share, and DIA is second, with a 10.4 percent share.


Phone companies

Phone companies in Spain have also taken advantage to increase their prices for the same service level.

The three main culprits have been Vodafone, Movistar and Orange. Vodafone has put up its mobile-only tariffs by €2.50 per month and its package tariffs by €5.50 per month with no obvious improvements to its service.

Movistar has put its prices up by 6.8 percent on average, and Orange has increased its rates for fibre, mobile and TV tariffs by €2 per month and €5 per month depending on the package deal, according to the OCU.



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