Inflation is a measure of how much the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. Central banks attempt to limit inflation and avoid deflation in order to keep the economy running smoothly.
There are several factors that can contribute to inflation:
- Increased demand for goods and services: If there is more demand for goods and services than there is supply, businesses may raise prices in order to meet that demand.
- Increased production costs: If the cost of producing goods and services increases, businesses may pass those costs on to consumers in the form of higher prices.
- Decreased supply of money: If there is a decrease in the supply of money in an economy, the value of money increases and prices may decrease.
The prime suspects
Many economists and politicians on the left point to the war in Ukraine (for pushing up oil prices, which bleeds into most everything else), and also greedy companies, many of which, despite tales of supply chain snarls and rising costs, have been bringing in record profits. (Corporations, in aisle 4, with the price gun.)
The smoking price gun
Rewritten: The high profits reported by some companies amid supply chain and cost struggles raises questions about where the money is coming from. It is possible that these companies are using the excuse of rising costs as a cover for increasing prices for consumers.
According to Rakeen Mabud, Chief Economist for the progressive think tank Groundwork Collaborative, companies are taking advantage of families who are struggling financially by exploiting them for profit. Mabud stated, “Companies are taking a spoonful of sugar off the backs of families who are all really struggling to get by.”
Murder on the competition express
Adding to the case against corporations is a lot of the consolidation we’ve seen in corporate America over the last 40 years.
Case in point: There are four companies in the U.S. that control about 80% of the beef and poultry market.
That kind of consolidation can mean companies don’t have to compete as much for our business and there’s less pressure to keep prices low.
Prices of raw materials have been rising all year. They’ve been rising at about the same rate as the prices we’ve been paying in stores.
Actually a bit more. Wholesale prices (the cost of the raw materials companies buy to make the stuff they sell to us) are up more than 8% over last year, compared with consumer prices, which are up 7.7% over last year.
That is powerful evidence that a lot of the higher prices we are paying in the store are just the higher cost of raw materials being passed along by manufacturers and retailers.
University of Michigan economist Justin Wolfers says corporate greed is a red herring and companies are not the source of inflation.
“My friend and economist Jason Furman says, ‘Blaming inflation on greed is like blaming a plane crash on gravity,'” says Wolfers. “It is technically correct, but it entirely misses the point.”
And the killer is …
We’re not necessarily buying more because we have more money, though. Our collective savings has been shrinking and household debt has been on the rise. It’s possible we’re spending money we don’t have to keep up with rising prices.
That is likely not sustainable. And when our buying slows down, Wolfers says, companies will start lowering prices to entice us to buy: Prices will fall and inflation will ease. But, until demand drops, companies will push prices up as much as they can. It’s elementary