As Greedflation Starts to Fade, Wageflation Creeps In

When inflation took off in 2021 in the U.S., so did corporate profits, leading to accusations of “greedflation” and calls in some corners for price controls. This year, Europe is going through the same debate amid soaring food prices.

Judging by recent developments, inflation driven by corporations flexing their power to jack up prices more than costs—greedflation, as some called it—is on its way out. Pretax margins, which widened sharply in 2021 and 2022, were roughly back to pre pandemic levels in the first quarter of 2023, according to revised government data released last week. Margins in six of the S&P 500’s 11 sectors were lower in the second quarter than four years earlier, according to FactSet.

Narrowing profit margins, though, doesn’t necessarily mean an end to inflation. Wages are now growing faster than prices. While that doesn’t provoke the same outrage as soaring profits, it’s just as problematic for getting inflation down.

The circumstances of 2021 and 2022 made for a seller’s paradise. As the economy reopened, newly vaccinated consumers rushed to spend pent-up savings and stimulus cash. That demand collided with supply held down by pandemic disruptions and the inability of meeting so much demand with existing capacity.

The result: pretax margins shot from 15.6% in the fourth quarter of 2019 to 17.9% in the second quarter of 2021. That’s based on the Commerce Department’s measure of total value added by corporate businesses. This measure separates total costs into labor, profits, and non labour costs such as depreciation, interest and excise taxes, while excluding inputs, such as energy.

In the year through the second quarter of 2021, those companies’ prices rose 4.3%. At the same time, the cost of labour per unit of output fell 2.3%, because though wages were rising in that time, output per worker (productivity) was rising faster. Profit per unit of output rose a whopping 40%.

Greedflation is a catchy phrase, but not of much analytical value. Businesses always set prices to maximise profits. Raising them too much risks competitors ramping up supply to take market share.

But in 2021 and most of 2022 many companies couldn’t expand supply because of shortages of materials, labour or transport capacity. In the past when demand for vehicles rose, manufacturers effortlessly boosted output. This time, a shortage of semiconductors curtailed production and manufacturers responded to strong demand by slashing incentives and raising prices. General Motors sold fewer vehicles in both 2021 and 2022 than in 2019 but in both years made about 50% more profit. Companies weren’t the only beneficiaries: so was anyone with a used car to sell.

While greed is timeless, companies conceivably may have more power to translate greed into prices because of declining competition. The Biden administration, for example, blamed soaring meat prices in part on consolidation among meatpackers. But that wouldn’t have translated into such high prices without so much demand from locked-down consumers and the industry enduring production interruptions and labour shortages due to Covid-19, drought, avian flu and shrunken herds.

In recent quarters demand has softened. Adjusted for inflation, consumer spending was flat in three of the past four months. Tyson Foods lost money in the second quarter as soft demand pulled down prices for pork and beef while feed and labour expenses rose.

Supply, meanwhile, seems to be improving, at least for goods. In a report this week, economists at Goldman Sachs said global shipments of automotive semiconductor chips and U.S. auto production in the past few months are finally above pre pandemic levels. As a result, automotive inventories and incentives are both on the rise. In May the average new car buyer paid $410 below sticker price, compared with $637 above a year earlier, according to Cox Automotive.

Demand for services is holding up better than for goods, and services supply is still constrained, in particular by labour shortages. One reason air travel is so expensive is that airline capacity this year is about 14% below pre pandemic trend levels, Delta Air Lines recently told shareholders.

As airlines add flights they stretch staff, aircraft and air-traffic controllers to capacity, leaving them vulnerable to the slightest disruption. After thunderstorms triggered hundreds of flight cancellations in recent weeks, United Airlines said it might reduce flights out of its Newark, N.J. hub to create a buffer.

Airlines also reflect a broader reality: Whatever pricing power business still commands is increasingly eaten up by labor costs. Pilot shortages caused by pandemic retirements have given unions bargaining leverage, with many seeking to replicate a 34%, four-year increase Delta gave its pilots this year.

Workers are slowly recapturing more of the economic pie. In the first quarter of 2023, wages and salaries rose to 49.3% of corporate value added, higher than in 2019. Labor costs per unit of sales rose 6% in the year through the first quarter, ahead of prices, which were up 5.3% in the same period. Profits per unit of output rose just 1.6%.

The trend of wages rising faster than prices has continued in recent months. That’s welcome relief for workers but poses a set of difficult tradeoffs: Either profit margins will have to narrow further, which businesses will resist; high inflation will have to continue, which the Federal Reserve is fighting; or productivity will have to boom, of which there is no sign yet. If none of those things happen, then wageflation, like greedflation, will have to go away.

Reporting season has once again reminded investors that a strong profit does not guarantee a rising share price, and a large loss does not always trigger a sell-off. What matters most is how each result compares with expectations and, increasingly, what management says about the year ahead. During the August 2026 season, companies offering credible turnarounds or unexpectedly strong guidance were rewarded handsomely, while those flagging weaker margins, slowing demand or greater uncertainty were punished.

The following ranking draws on Morningstar’s review of 164 ASX-listed companies and measures each company’s share-price movement on the day it reported. This captures the market’s immediate response to the earnings announcement, before subsequent economic developments, dividends and company-specific news cloud the picture. Here are the five biggest winners, and the five hardest-hit losers, of the season so far.

The five winners

1. Bapcor (ASX:BAP): +41.0%

Bapcor delivered reporting season’s largest relief rally after presenting early evidence that its troubled automotive-parts business was stabilising. Although underlying revenue fell 1.8% to $1.92 billion and underlying NPAT collapsed 85% to $10.8 million, underlying EBITDA of $152.5 million exceeded guidance.

More importantly, working-capital initiatives released $68.5 million in the second half, lifting cash conversion to 109.4% and reducing net debt by 63% to $135 million. The statutory loss was $431.6 million, largely because of non-cash impairments. Investors focused on improving operational momentum, stronger liquidity and management’s expectation of modest FY27 revenue growth.

2. Zip Co (ASX:ZIP): +18.2%

Zip comfortably surpassed its FY26 targets, sending the buy-now-pay-later provider’s shares sharply higher. Transaction volume rose 23% to $16.7 billion, while cash earnings before tax, depreciation and amortisation jumped 58% to a record $268.9 million. Statutory profit climbed 46% to $116.4 million, and the cash operating margin expanded by 4.2 percentage points to 20%.

The strongest signal was guidance for FY27 cash earnings of $340 million—around 26% growth and above analysts’ forecasts. US transaction volume increased 42.5% and now represents three-quarters of group volume, offsetting weaker customer activity in Australia.

3. CSL (ASX:CSL): +17.3%

CSL’s result was hardly spectacular in isolation, but it cleared a market bar that had fallen dramatically following earlier downgrades and restructuring announcements. Underlying NPATA was US$3.1 billion, down 2% in constant-currency terms, while operating cash flow reached US$3.51 billion.

CSL maintained its full-year dividend at US$2.92 per share and completed a A$1 billion buyback. The real catalyst was FY27 guidance for approximately 5% underlying profit growth, compared with market expectations closer to 2%. After an extended period of earnings disappointments, investors interpreted the outlook as evidence that CSL’s core plasma business was approaching a sustainable recovery.

4. Judo Capital (ASX:JDO): +16.9%

Judo Capital demonstrated strong operating leverage as its specialist business-lending franchise expanded. Full-year profit before tax rose 34% to $168.1 million, while pre-provision profit increased 42%. Gross loans and advances grew 18% to $14.7 billion, reaching the top of the bank’s guidance range and comfortably exceeding broader system growth.

Deposits increased 24% to $12.2 billion, return on equity improved by 1.1 percentage points to 6.4%, and earnings per share rose 29% to 9.9 cents. Reaffirmation of the FY27 outlook gave investors confidence that loan growth could continue without sacrificing margins or credit quality.

5. Super Retail Group (ASX:SUL): +15.8%

The owner of Supercheap Auto, rebel, BCF and Macpac reported record sales of $4.2 billion, up 3.2%, despite cautious discretionary spending. Profitability went backwards: normalised profit before tax fell 7% to $306 million and normalised NPAT declined 2.8% to $226 million as transformation spending weighed on margins. Nevertheless, the result exceeded subdued expectations, online sales grew 5.3% and membership across the group’s loyalty programs reached 13.1 million. Investors were also encouraged by positive early FY27 trading, stable gross margins and continued market-share gains. A fully franked 33-cent final dividend added to the appeal.

The five losers

1. Hansen Technologies (ASX:HSN): –21.2%

Hansen’s historic result met expectations, but investors recoiled from its outlook. The utility and communications software provider achieved an underlying EBITDA margin of 31%, exceeding its 30% target, while generating strong cash flow. However, management designated FY27 an “investment and transition year”, signalling a roughly five-percentage-point margin contraction as spending on products, sales capabilities and organisational changes increased.

Revenue had already been broadly flat, leaving investors concerned that the investment program would depress earnings before new growth appeared. Leadership changes, including the chief executive’s departure, added uncertainty. Management expects revenue growth and margins above 30% to return in FY28, but the market was unwilling to wait.

2. Life360 (ASX:360): –19.4%

Life360’s headline growth was impressive: quarterly revenue rose 38% to US$159 million, subscription revenue increased 31%, and adjusted EBITDA climbed 53% to US$31.1 million. Monthly active users reached 102.4 million and paying circles grew 27% to 3.2 million. The sell-off reflected expectations rather than a collapsing business.

Net income fell 18%, the net margin contracted from 6% to 3%, hardware shipments dropped 18%, and full-year EBITDA guidance was merely maintained. After a strong valuation run, investors wanted a larger upgrade and clearer evidence that heavy investment in advertising, international expansion and artificial intelligence would generate additional earnings.

3. PEXA Group (ASX:PXA): –17.0%

PEXA reported a 7% increase in continuing-operations revenue and 12% EBITDA growth to $152 million, accompanied by a two-percentage-point margin expansion. Free cash flow increased 39%, suggesting the core Australian electronic-conveyancing platform remained highly profitable. Investors instead concentrated on management’s warning that property-transfer volumes could decline, alongside regulatory uncertainty surrounding the fees PEXA can charge.

The company is also continuing to invest heavily in its loss-making international expansion. Morningstar considered the market reaction excessive, arguing that structural transfer-volume assumptions had not materially changed, but the combination of softer near-term activity and regulatory risk overwhelmed the respectable headline numbers.

4. SEEK (ASX:SEK): –14.3%

SEEK produced solid FY26 figures, including 10% revenue growth to $1.20 billion, a 15% rise in EBITDA and 28% growth in adjusted earnings per share. It also lifted its fully franked annual dividend by 13% to a record 52 cents. Those achievements were overshadowed by falling paid job-ad volumes and cautious FY27 assumptions.

The statutory accounts included a $201 million loss from the SEEK Growth Fund and $377 million of significant items, making the headline result considerably less attractive. Investors were particularly concerned that economic weakness could limit volumes while the company continued investing in platform integration and artificial-intelligence products.

5. JB Hi-Fi (ASX:JBH): –12.3%

JB Hi-Fi’s full-year result was broadly respectable, with group sales rising 5% to $11.1 billion and underlying earnings per share increasing 6% to $4.48. The damage came from its current-trading update. Australian sales were almost flat during the June quarter and deteriorated further in July, while earnings in the core Australian electronics business fell 3.6%.

Housing-related categories were particularly weak as higher living costs and interest rates constrained household budgets. With JB Hi-Fi entering the season on a demanding valuation, an in-line historic result was not sufficient: the loss of sales momentum prompted investors to rapidly reduce their expectations for FY27.

Overall, the season showed that share prices react less to whether profits rose or fell than to the gap between results and expectations. Bapcor was rewarded for being less troubled than feared, while several fundamentally profitable companies were punished because their outlooks failed to justify elevated valuations.