The “new” question is the extent to which corporate greed for higher profits (through increased targets for higher profit margins) has caused inflation to be higher than it otherwise would be — in a competitive marketplace. Restricted access to inputs due to supply bottlenecks caused by the Covid pandemic, military and political conflicts or trade and financial restrictions have reduced competition and threats of new entrants. This must surely amplify the power of firms and businesses to raise their prices and profits.
Although Western academicians have begun debating if recent inflation is “greedflation” (profit-price spiral that drives inflation) instead of the traditional inflation (wage-price spiral), financial analysts, mainstream economists and the media have yet to catch up. We think this will soon change. So, we decided to write this article to explain what “greedflation” is and, more importantly, whether it explains the stickiness of current prices that may require a more severe contraction of economic activities to bring down.
Like others, we have written on the conventional reasons for today’s inflation. The supply-chain disruptions caused by the Covid-19 pandemic, the Russia-Ukraine conflict, geopolitical tensions, the “de-coupling” of the West from low-cost producer China, and the huge liquidity that was injected by almost all countries to stimulate their economies in recent years (and in the US, since the 2008 global financial crisis). All these are true.
