Hey there,
The last year or so I keep hearing the term ‘Greedflation’ pop up more and more. The Idea here is that there are greedy capitalists that are raising the prices on goods and services faster than their own costs are increasing and this is causing prices to rise.
Now if I think about it inflation is always based on some price increasing, and sometimes because there is some shock that limits how mch of something is available. Oil is scarce because of some natural disasters or war, food is scarce because of drought, etc.
Most of the time there are other sources of the same resources (different crops), or the resource was horded before (‘strategic’ oil reserves), in both cases someone is able to charge more (eg Profit) from the situation.
So now it sound to me that normal inflation and greedflation are both simply based on one entity in the supply chain increasing the price to take advantage of the situation. Whether you call it greedflation or not depends on whether your personal “in” group is profiting from or or not.
Where is my thinking error here? Is greedflation a real thing?
Yes and no. It’s basically just super complicated and we don’t know how much is each factor. But I would highly doubt that part of the rising costs is not also just because people are still willing to pay.
At the end of the day it’s supply and demand. And that fluctuates based on so many different things.
Interest rates being low and money being easy to borrow creates higher demand and will in part cause prices to increase.
Supply chain shortages create massive demand spikes that can have massive effects on pricing of certain products as the supply chain tries to stabilize.
The FED can employ quantitative easing to increase money supply and liquidity, which adds to inflation, but increases economic growth (Theoretically).
Or they can use quantitative tightening to reduce money supply and lower demand, slow growth etc.
Lastly companies understand how normalized inflation has become and can increase what they charge even if their cost of goods isn’t moving significantly. So there is certainly some degree of this happening.
Hopefully the market will re-adjust as profit margins change and consumers spending habits fully adjust to the market.
Basically if everyone re-evaluates what and how they are purchasing, the market has to adjust. If you buy the products you prefer at the inflated cost, companies are not going to lower prices. If you buy budget or off brand items where you can, they will be forced to change their strategy to compete.
Our grocery bill literally doubling in the last 5 years without changing anything to our spending habits (buy stuff on special, off-brand items - which often have much higher margins for large stores, by the way, stock up/freeze stuff, meal prep, eat in season, local markets, etc), yet grocery chains having record profits, is just supply and demand at work. Nice👌