The Nepean Rep Report – The Age of Alibinflation

Prices are high, and only going higher. With the Federal Reserve again raising rates last week, and the Bank of England also expected to raise rates today, inflation clearly remains entrenched on the fiscal policy radar.

And yet, all the signs are pointing towards this being the last of the rate hikes, with a former Bank of England rate-setter predicting a sharp fall in inflation throughout the rest of the year. This ‘turning point’, then, makes for a good time to assess the responses of the business community to inflationary pressures.

Who has struggled with the rest of us, and who has instead found a silver lining at the public’s expense?

Excuses Excuses

If we can be said to have gained anything from an otherwise gloomy and pricey period, it’s a whole host of new neologisms: ‘excuseflation’, ‘greedflation’, or – to coin another, just for fun – ‘alibinflation’. The premises of all are essentially the same: for some companies, inflation has provided a handy cover to raise prices and boost profits – at consumers’ expense.

This is not some conspiracy theory emerging from some dark corner of Twitter: industry voices are coming to similar conclusions. Société Générale’s Albert Edwards, for example, stated that companies “have clearly taken advantage of rising inflation expectations” to hike prices “well in excess of cost increases”.

Elsewhere, Jefferies’ Martin Deboo took aim at Unilever with analysis indicating that its price increases were 31% greater than the increase in its cost of goods, forcing CEO Alan Jope to claim there was no profiteering occurring “in any way shape or form”.

Trust is low; suspicion is high: YouGov research into Brits’ favourability regarding the supermarket industry shows a steady decline since the start of 2021, with almost one in four shoppers supermarket switching last year. In such an environment, it’s not enough that businesses do nothing to give consumers and stakeholders cause for doubt – preventing.

With mountains of possible mitigating circumstances, individual cases of profiteering are hard (and, probably, legally expensive) to prove. But cats have been killed for a lot less, and it is only right that consumers ask questions in the face of such asymmetrical cost-price information. Businesses need to ensure they have the right answers and reassure their key stakeholders.

Justification, cause and effect must be built into corporates’ communications strategies. Consumers understand that prices are rising, but they are also quick to believe that businesses are taking advantage – as Tesco and Sainsbury’s are now discovering, accusations of profiteering can be hard to shake off.

Liberté, Égalité, Regulation-é

If the CMA has been somewhat slow in defending the people from profiteering, the same cannot be said in the world of entertainment, where it recently blocked Microsoft’s planned £55bn takeover of Activision.

Amidst political tensions and economic uncertainty, there are a lot of quite reasonable fears associated with M&A, from job cuts to national security – something Italy’s PM took to a new extreme this week, wading into the merger of Whirlpool and Arcelik. In such an environment, there is a good way to handle regulatory disputes, and a bad one. Microsoft’s Brad Smith plumped for the latter.

In an interview with the BBC, Smith described the decision as Microsoft’s “darkest day in [its] four decades in Britain.” Not one to over dramaticise, he continued by stating that the move was “bad for Britain” and would “discourage innovation and investment”. Something the CMA strongly rebutted, and that many in the media described as ‘whining’ indicative of ‘Big Tech’s sense of entitlement’.

With acquisitions by Broadcom and Adobe also on the CMA’s radar, as well as the launching of a review of the AI market, don’t expect the regulator to fall out of the news cycle any time soon. With a broad regulatory remit, heightened social pressures and a new chief executive, the CMA is eager to show just what it can do.

In justifying the position taken by the CMA, CEO Sarah Cardell was quick to issue an open and transparent response: clearly setting out the reasoning behind the decision and issuing a defence against Smith’s comments. Businesses would do well to mind her approach, demonstrating an awareness of the wider economic and political context when communicating purported benefits.

Deals of this kind might, just a few years ago, have gone through with ease, but now is a time of new and ranging concerns. The UK is not closed to business; businesses need to demonstrate they are are cognisant of their wider social position and the positive role they can play.

Like Streaming Nonsense to a Baby

Finally, over the years, Spotify has faced countless accusations of various misdoings from a wide and ranging array of stakeholders. With roots firmly in the populism of music piracy, one group it has unsurprisingly consistently pleased is consumers – that, though, might be starting to change.

In its quest to ‘monopolise our ears’, Spotify has worked hard to urge listeners to keep on listening: tweaking its recommendation algorithm and introducing new features to ensure the music doesn’t stop. One such addition is the autoplay feature, whereby, when a user’s chosen songs come to an end, Spotify continues to play songs it believes to be similar.

Recently, though, people have begun to notice strange goings on. Twitter user Adam Faze identified almost 50 identical songs, all by different artists, whilst music blogger Jaime Brooks discovered ‘randomised, nonsensical’ clips of classical music appearing on a ‘Mozart for Babies’ playlist.

In both cases, it appears generative AI is being used to create music sonically similar to other tracks, structured in such a way as to appeal to Spotify’s algorithms. The genres being targeted are those that people often have in the background, perhaps even while they’re asleep – babies and the unconscious are those least likely to find the skip button.

There are two possibilities here: either scammers have found a way to game the system, or Spotify is itself hiring producers to develop these tracks in order to then license them at lower rates – a practice it has been accused of since 2016. Maybe both are true. Either way, what really matters is that both are a breach of trust, and AI – by making it all the easier to create ‘fake’ songs – is going to make this problem all the worse.

Music consumption is in a state of flux, with fans increasingly looking to older, more ‘authentic’ formats such as vinyl and cassettes. But some things stay the same: nobody likes to be lied to. By leaving vulnerable their core service – the provision of music that people want to listen to – Spotify, unless it finds further solutions to these issues, risks discovering the truth of the old adage: trust is hard to earn and easy to lose.

There are lessons here for businesses at large. AI is set to bring about a whole host of benefits, but some things need to stay the same. For every business and service provider, there will always be some core, non-malleable element of the offering that is needed to keep everyone humming along.

 

Luke Roberts