Greedflation

The term Greedflation first appeared during the COVID-19 pandemic to describe the idea that some inflation is driven by increases in corporate profits. Suggested mechanisms include price gouging, price fixing, windfall gains resulting from information asymmetry, monopoly-like power, and external shocks to the economy. The theory, which first gained traction among left-wing pundits and trade unions,^[1] was considered fringe until 2023.

Some economists have argued profits have played a greater role in the post-COVID-19 2021-2023 inflation surge than during the period of inflation in the 1970s.^[2]

In the wake of the COVID-19 pandemic, inflation increased significantly as did discussion of the role of corporate profits in that increase.^[3][4] Proponents of the theory pointed to data showing that corporate profits outpaced inflation.^[3] Economists interviewed by PolitiFact believe rising costs of goods, labor, and real estate are bigger drivers of inflation than corporate profits.^[3] Combatting inflation by ensuring corporations are not taking excessive profits was cited by some Democrats ahead of the 2024 United States elections.^[5][6]

In August 2024, the Associated Press reported that greedflation was easing as consumers become more discriminating.^[7]

The FTC released a report in March 2024 finding that some large retailers did not drop prices when input costs dropped. The study found some large retailers sought to gain an advantage over smaller competitors by threatening suppliers with large fines if strict delivery requirements were not met. The FTC also objected to continued elevated profit margins as evidence that there was not enough competition in the grocery sector.^[8] The FTC and several state attorneys general in February 2024 sued to block a proposed $25 billion merger between large grocery chains Kroger and Albertsons, arguing the deal would reduce competition and likely lead to higher consumer prices.^[9]

Windfall profit taxes have gained renewed interest following the COVID-19 pandemic, the war in Ukraine, and subsequent surges in energy and food prices. As major American and British oil producers (Big Oil) reported record profits in the first half of 2022,^{[10][11][12][13]} the United Kingdom imposed a 25% windfall profit tax on British North Sea oil producers, which expected to raise £5 billion to pay for a government scheme that reduced household energy costs.^[14] In October 2022, U.S. president Joe Biden threatened to seek a windfall profit tax if the industry did not increase production to curb gasoline prices.^[15]

Eric Levitz argues that windfall taxes are worth pursuing regardless of whether greedflation is a major factor or not, as it would incentivize producers to invest in expanding production (which takes pressure off of prices) instead of giving out dividends to shareholders.^[16] Thomas Baunsgaard and Nate Verson of the IMF recommend implementing permanent windfall profit taxes on fossil fuel extraction but not temporary taxes or taxes on renewable energy.^[17] They argue that the taxes should always target a clear measure of excess profits and not be tied to price levels or revenue.^[17] Other notable supporters include Joseph Stiglitz and Isabella Weber,^[18][19] among other economists.^[20][21][22]

Eric Levitz argues that these laws are worth pursuing regardless of whether greedflation is a major factor or not.^[16] Isabella Weber recommends strict price gouging legislation, praising the 2023 proposal in New York to cap price increases during emergencies to 10% for consumers as well as for businesses upstream.^[23][19]

Isabella Weber and her colleagues argue for price caps.^[23][19] Paul Krugman changed his mind and expressed interest in adding price caps to the toolkit to flight inflation.^[23]

CNN argued against price caps, noting that consumers play a pivotal role in the price of goods. Inflation during COVID had many causes, but corporate greed was not a primary factor.^[24]

In the words of Paul Hannon writing for The Wall Street Journal in December 2023, "[t]here is broad consensus among economists that the role of profits in fueling inflation is one feature of the recent inflationary episode that made it different from the 1970s. Yet how much of a role profits played is the subject of controversy."^[2]

In July 2023, The Economist criticized the entire concept of greedflation as "nonsense" and argued that rising prices are not due to "greedy companies" but are a natural result of supply and demand issues caused by the cash infusion to the economy which took place during the COVID-19 pandemic.^[25]

In August 2024, CNN argued that greedflation is "for sure a thing" but is "not a primary driver of inflation when averaged out across all industries".^[24]

Observing the PCE Index (published by F.R.E.D.); as given by a quarterly, end-of-period reporting scheme; under a natural logarithmic transformation of the data points, it purports decreased consumer expenditure since 2020; with an average rate of 0.88% from Q2-2020 to Q4-2021, 0.47% from Q1-2022 to Q1-2023, compared to an average rate of 0.27% from Q2-2023-Q3-2024. Therefore the above claim is false given by its unsupported argument.^[26]

In 2022, several economists stated that while price gouging could be a minor contributor to continuing inflation, it is "not one of the major underlying causes" that started this surge.^{[27][28][29][30]}

Libertarian critics, citing a study by the Cato Institute, accused the Groundwork Collaborative study of deliberately "cherry pick[ing] a one year timeframe [2023] to tell a misleading story", and that profits are not a major fact in inflation.^[31]

In the United States, some Democratic politicians,^[27][30] as well as other observers, have contended that price gouging or "greedflation" exacerbated the inflation surge in the United States.^[27][28][29] In January 2023, the Federal Reserve Bank of Kansas City released a study showing markup growth likely contributed more than 50 percent to inflation in 2021, far above normal; however, the markup itself could be due to expectations around future costs.^[32][33] A May 2023 New York Times story reported that despite the costs of doing business falling in recent months, many large corporations have continued to raise prices, contributing to the recent inflation surge. It warned that inflation due to profit-taking could lead to an economic downturn created by sustained higher interest rates.^[34]

Shortly after initial energy price shocks caused by the Russian invasion of Ukraine subsided, oil companies found that supply chain constrictions, already exacerbated by the ongoing global COVID-19 pandemic, supported price inelasticity, i.e., they began lowering prices to match the price of oil when it fell much more slowly than they had increased their prices when costs rose.^[35] Analysis published in June 2023 by the Bureau of Labor Statistics found that, from February 2020 through May 2023, gasoline retailing profit margins had increased 62%.^[36] Isabella Weber warned in December 2023 that energy prices are so volatile that special attention should be paid to them to try and keep future supply shocks from causing more sellers' inflation (Weber's term for greedflation).^[2]

• Lina Khan - chair of the Federal Trade Commission (FTC)
• Vimes Boots Index (VBI) - a proposed measure to assess the disproportionate impact of inflation and supermarket pricing practices on the poor

• "What has been driving inflation? Economists' thinking may have changed" (May 12, 2023) on Planet Money
• "How Harris could tackle food inflation" (September 3, 2024) in The Hill