A scrambled debate (Justin Sullivan/Getty Images)
More heated than the “Succession” finale… the greedflation debate. With inflation still stubbornly high, some are pointing fingers at corporate profits. The idea, also dubbed profit-led inflation or “excuseflation,” is that some corporations hike prices beyond what's needed to cover rising costs — leaning on broad inflation and black-swan events (like: pandemic, war) as an excuse. In a recent survey of 2K US consumers, over half said they believe greedflation is happening “a lot.” They’re not alone.
Makin’ bank: European Central Bank economists said that businesses have been padding profits, which they argued was a bigger inflation driver than rising wages in the second half of last year.
Corporate profit margins hit a 70-year high last year as consumers stomached higher prices, and this year companies continued flexing their “pricing power.”
Not everyone's on team #greedflation… While some margin-padding may be happening, many economists say there’s little evidence that corporate profits are significant contributors to inflation. Last week, former Fed Chair Ben Bernanke and ex-IMF chief economist Olivier Blanchard released a study that pointed to Covid supply shocks (and the trillions in gov’t stimulus that followed) as the main causes of US pandemic-era inflation. Picture: fewer goods available + more $$ to buy them with. Last year, Treasury Secretary Yellen rejected the idea that corporate greed is driving inflation, pointing to good-old supply and demand as the main culprit.
The “greedflation” debate is a symptom… of unusually resilient demand. US consumer spending jumped last month and inflation accelerated. Despite its aggressive interest-rate hikes, the Fed hasn’t been able to cool demand/inflation/the labor market nearly as fast as hoped. Without continued spending, prices wouldn’t have been able to stay so elevated. Resilient demand could be a result of extraordinary stimulus measures and years of near-zero rates that helped lead to historically low unemployment and rising wages. But some retailers are starting to see that consumers are tightening their budgets.