Greedflation: Do Soaring Corporate Prices Drive Inflation? Experts participate

Many consumers who are furious with rising prices at gas stations and supermarkets feel they know where to take responsibility.

In response to that sentiment, the Democratic-led House of Representatives passed a party vote last month. Most Democrats agreed, and all Republicans disagreed. Energy producer.

Similarly, the UK last monthoil and gastemporarily imposed a 25% storm tax on corporate profits to households struggling financially with their profits. Announced a plan to pour.

Read more: Inflation causes protests around the world as rising food and fuel prices

However, due to the resentment of all the people, most economists say that price cuts at companies are at best one of many causes of runawayinflationand not a major cause.

"There are far more compelling candidates for what's happening," Navarra, Spain. University economist Jose Azar said.

Includes: Strong consumer spending. Supply disruptions at factories, ports and cargo yards. Labor shortage. President Joe Biden's huge pandemic aid program. COVID19-A shutdown has occurred in China. Russia invades Ukraine. And, in particular, the Federal Reserve, which maintained ultra-low interest rates longer than experts should say.

If anything, the game of blame has intensified after the US government reported that inflation in May reached 8.6% year-on-year. This is the biggest price surge since 1981.

Fed Delays to Fight Inflation However, we are actively tightening credit. On June 15, we raised the benchmark short-term interest rate by three-quarters. This is the largest rate hike since 1994 and indicates a larger rate hike. The Federal Reserve wants to achieve the infamous and difficult "soft landing." That is, a slowdown in growth sufficient to curb inflation without putting the economy into recession.

Even if unemployment falls to its lowest level in half a century, inflation will continue for years, the Fed's year. It remained below the target of 2%. However, when the economy recovered from the pandemic recession with tremendous speed and power, the US consumer price index rose steadily, from 2.6% year-on-year in March 2021 to its 40-year high last month. It has risen.

At least for some time, the surge in inflation coincided with the expansion of corporate profits, before the profit margins of S&P 500 companies fell earlier this year. It was easy for consumers to connect the dots. The company seems to have been engaged in price cuts. This is not just inflation. It wasgreedy.

Asked for the name of the culprit behind the soaring petrol prices, 72 or Biden (58. And the rating was bipartisan: 86% of Democrats and 52% of Republicans were petrol prices.

The Stern School of Business economist at the University of New York, Christopher Konron, who studies corporate competition, said, "Consumers see rising prices. It's very natural to look for someone who gets angry and blamed. " Because I see companies raising prices. "

Still, Konron and others Many economists are reluctant to support prosecuting or punishing corporate America. When the University of Chicago Booth Business School asked economists this month if they would support a law banning large businesses, " 65% answered no as "convincingly overpriced" during a market shock from selling their goods and services on "un". Only 5% supported the idea.

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Economist Azar admits that the combination of factors that cause prices to soar is an "unresolved issue." COVID-19 and its aftermath make it difficult to assess economic conditions. Today's economists have no experience in analyzing the economic aftermath of pandemics.

Continued Read: Inflation will continue to rise and the recession will continue. Experts say "beat the hatch"

Policymakers Analysts have repeatedly been blind to the path the economy has taken since the COVID broke out in March 2020. Huge government spending and record lows designed by the FRB and other central banks. Backed by interest rates, then they are slow to recognize the threat of high inflationary pressures and initially dismiss them as a mere temporary result of supply turmoil. I did.

But one aspect of the economy is indisputable. The wave of mergers over the last few decades has killed or reduced competition between airlines, banks, meat packaging companies, and many other industries. This integration allows surviving companies to demand price cuts from their suppliers, reduce worker wages, and pass on higher costs to customers who have no choice but to pay.

Federal Reserve Bank of Boston researchers say that less competition makes it easier for businesses to pass on higher costs to their customers. I found that it would be. "Amplification factor" in the resurgence of inflation.

Research director of the Liberal Institute for Economic Policy Josh Bibens estimates that nearly 54 people have a "larger rate of return" on the percentage increase in non-financial business prices since mid-2020, compared to just 11% between 1979 and 2019. There is likely to be. In the last two years. But he suggested that companies changed their use of market power during the surge in COVID inflation. Many companies put pressure on their suppliers to reduce costs and limit workers' wages, thus raising customer prices instead.

In a survey of about 3,700 companies released last week, the leftist Roosevelt Institute concluded that last year's markup and profit margins reached their highest levels since the 1950s. In addition, companies that were aggressively raising prices before the pandemic may raise prices after the pandemic occurs, as they "suggest the role of market power as an explanatory driver of inflation." Turned out to be high.

Similarly, New York University's Konron gives an example of soaring prices in a highly competitive market. For example, used cars are sold by many individuals across the country. Still, average used car prices have skyrocketed 16% over the past year. Similarly, the average price of white goods, another market with many competitors, surged nearly 10% last month compared to the previous year.

In contrast, the price of alcoholic beverages has risen only 4% from a year ago, despite the beer market being dominated by AB-Inbev and the spirits being dominated by Bacardi and Diageo. I am.

"It's hard to imagine that AB-Inbev isn't as greedy as Maytag," Konron said.

So what caused the inflation surge the most?

"Demand," said Ferman, who is currently at Harvard University. "A lot of government spending, a lot of financial support, all combined to support a very high level of demand. Prices have risen because supply couldn't keep up."

Researcher The Federal Reserve Bank of San Francisco said that government aid to the economy during the pandemic put money in consumer pockets to help consumers endure the crisis and start spending, from the first half of the year. Estimates of raising inflation by about 3 percentage points

In a report released in April, researchers at the Federal Reserve Bank of St. Louis "play an important role" in boosting factory costs. Condemned the bottleneck of the global supply chain for fulfilling. They found that it added a staggering 20 percent points to manufacturing wholesale inflation last November and raised it to 30 percent.

Still, even some economists who don't blame greed for last year's price surge government Should try to limit monopoly market power, perhaps by blocking mergers that reduce competition. The idea is that more companies competing for the same customer will drive innovation and increase the productivity of the economy.

Still, stricter antitrust policies will soon be less effective in slowing inflation.

"I think it's useful to think about competition like diet and exercise," said Konron of New York University. "More competition is good, but like diet and exercise, the rewards are long-term.

" Patients are now in the emergency room.Sure, diet and exercise are still good. But we need to deal with the serious problem of inflation.

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