Corporate price hikes get the side-eye as greedflation trends, stoking the inflate debate

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.