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You make a good case against “strong greedflation,” the idea that greedy companies are driving our current inflation. But I think there is case for “weak greedflation.” Companies with market power, who can hold prices above the marginal cost of production, act to preserve their margins as supply costs rise. This forces the full impact of tight supply onto other sectors, consumers, labor, and small business. Because large companies (rent collecting) can pass on their full increase in costs, the price adjustment mechanism in the economy is stiffer, making it harder to use slow inflation with government tightening. In my view, “greedflation” is not the cause of rising prices, but it does make inflation more persistent.
Don't we need to look at which products and services had increased prices and by how much? It's possible that firms with high market power took the opportunity to push the envelope on their prices to test the water on demand elasticity.
That makes sense theoretically but in a long-term environment of low inflation, sellers may get into a organizational pattern of low price increases (a behavioral phenomenon - don't make waves, not rational economic thinking) . In addition, in cases where sellers have achieved a recent an increase in market power, any significant price increase could draw the attention of regulators. In any event, it seems worthy of additional study.
The way I see 'greedflation' is that it is simply a re-defining of the mark-up term in the New Keynesian (NK) model. In the NK model, the inflation rate depends explicitly on the desired mark-up and real marginal cost. So the question we need to investigate is whether the desired mark-up went up. That is not the same as realized mark-up. From what I understand, observing either desired mark-up or real marginal cost is not currently doable in a consistent way.
But the whole term 'greedflation' is simply a different name to desired mark-up.
Once you switch the vertical axis of the price-level chart to a logarithmic one, it no longer tells the same story. Instead, it looks like the current trend goes back to 1900 or so, with a hiccup around the 1920s.
You make a good case against “strong greedflation,” the idea that greedy companies are driving our current inflation. But I think there is case for “weak greedflation.” Companies with market power, who can hold prices above the marginal cost of production, act to preserve their margins as supply costs rise. This forces the full impact of tight supply onto other sectors, consumers, labor, and small business. Because large companies (rent collecting) can pass on their full increase in costs, the price adjustment mechanism in the economy is stiffer, making it harder to use slow inflation with government tightening. In my view, “greedflation” is not the cause of rising prices, but it does make inflation more persistent.
Don't we need to look at which products and services had increased prices and by how much? It's possible that firms with high market power took the opportunity to push the envelope on their prices to test the water on demand elasticity.
That makes sense theoretically but in a long-term environment of low inflation, sellers may get into a organizational pattern of low price increases (a behavioral phenomenon - don't make waves, not rational economic thinking) . In addition, in cases where sellers have achieved a recent an increase in market power, any significant price increase could draw the attention of regulators. In any event, it seems worthy of additional study.
In the US are corporate profits as a share of GDP at an historic high?
The way I see 'greedflation' is that it is simply a re-defining of the mark-up term in the New Keynesian (NK) model. In the NK model, the inflation rate depends explicitly on the desired mark-up and real marginal cost. So the question we need to investigate is whether the desired mark-up went up. That is not the same as realized mark-up. From what I understand, observing either desired mark-up or real marginal cost is not currently doable in a consistent way.
But the whole term 'greedflation' is simply a different name to desired mark-up.
https://www.nominalnews.com/p/unintuitive-inflation-supply-wages
Once you switch the vertical axis of the price-level chart to a logarithmic one, it no longer tells the same story. Instead, it looks like the current trend goes back to 1900 or so, with a hiccup around the 1920s.