Think corporate greed is the leading cause of inflation? Think again

By Matt Egan, CNN. Excerpts:

"new research from the Federal Reserve Bank of San Francisco casts doubt on the greedflation theory.

Economists at the SF Fed found that corporate price gouging was not a primary catalyst for the inflation surge of 2021 to 2022. 

The Fed researchers did find that some companies exercised pricing power by raising prices above their production costs – a gap known as markups.

For instance, markups spiked for gasoline, cars and other goods in 2021. Likewise, there were increased markups for repair, general merchandise, laundry, personal care and other services, according to the Fed. 

Of course, the inflation crisis was not limited to just a few key sectors. It was economy-wide. (The annual inflation rate fell slightly in April, but it still remains well above the Fed’s 2% target.)

When zooming out and looking at markups across the economy, the SF Fed economists found little evidence that price gouging was the main culprit.

“Aggregate markups – the more relevant measure for overall inflation – have stayed essentially flat since the start of the recovery,” the paper concluded. “Rising markups have not been a main driver of the recent surge and subsequent decline in inflation during the current recovery.”

"In fact, the SF Fed found that the path of collective markups over the past three years “is not unusual compared with previous recoveries.”"

Greg Valliere, chief US policy strategist at AGF Investments, said the White House is “desperate to blame someone or something for inflation.”

“Blaming greedy corporations is just looking for scapegoats,” Valliere told CNN. “There’s no prescriptions here that would have a major impact quickly, other than the Fed reluctantly raising interest rates – an option that, incredibly, isn’t out of the question.”

Many economists blame the recent inflation surge on more traditional factors, namely higher production costs linked to swings in demand and Covid-era supply trouble."

"Last year, the Federal Reserve Bank of Kansas City found that corporate profits contributed 41% to inflation during the first two years of the Covid recovery.

However, that same Kansas City Fed paper noted that this is not unusual and corporate profits contributed even more (59% on average) to inflation during prior economic recoveries."