Societe Generale Economist: "We May Be Looking At The End Of Capitalism"

When costs go up, so do profits? That’s not how capitalism is supposed to work, but that is the recent trend.

Photo Insert: Corporations, particularly in developed economies like the US and UK, have used rising raw material costs amid the pandemic and the war in Ukraine as an “excuse” to raise prices and expand profit margins to new heights.

For over a year now, consumers and businesses, both in the US and worldwide, have struggled with stubborn inflation, Will Daniel reported for Fortune magazine. But the soaring costs haven’t prevented corporations from raking in record profits.

Companies in last year’s Fortune 500 generated an all-time high $1.8 trillion in profit on $16.1 trillion in revenue. Now. an economist at one of the world’s oldest and greatest investment banks is singing the same tune.

Albert Edwards, a global strategist at the 159-year-old bank Société Générale, just released a blistering note on the phenomenon that has come to be called Greedflation.

Corporations, particularly in developed economies like the US and UK, have used rising raw material costs amid the pandemic and the war in Ukraine as an “excuse” to raise prices and expand profit margins to new heights, he said.

Edwards wrote in the Tuesday edition of his Global Strategy Weekly that after four decades of working in finance, he’s never seen anything like the “unprecedented” and “astonishing” levels of corporate Greedflation in this economic cycle.

A January study from the Federal Reserve Bank of Kansas City found that “markup growth”—the increase in the ratio between the price a firm charges and its cost of production—was a far more important factor driving inflation in 2021 than it has been throughout economic history.

Typically, higher commodity prices and labor costs squeeze corporate margins, especially if the economy is slowing. But Edwards said data from the Bureau of Economic Analysis (BEA) last week showed profit margins still near a record high relative to costs in the fourth quarter.

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