“Greedflation?”

by Kari Grenade, PhD, Caribbean Economist and Macroeconomic Advisor

Globally, inflation remains high despite the moderation in international commodity prices particularly of food and fuel, and the normalisation (by and large) of global supply chains, relative to the situation last year.

Across the globe, women and men are becoming more intolerant of high prices, which are causing a downward spiral in their living standards, and they are expressing their intolerance through protests and social unrest.

Globally, economists are growing increasingly sceptical about the justification for continued rising prices of goods and services. It is hard to still blame Russia’s war in Ukraine for global inflation being so persistent. Moreover, research findings by top central banks indicate that higher wages are not necessarily driving up prices.

The question is, why are global prices still so high? The answer might rest in what is now being called “greedflation” or “sellers’ inflation.” “Greedflation” or “sellers’ inflation” is a non-technical term that is being used to describe the global situation where large companies in sectors such as shipping, energy, retail, food, and vehicle manufacturers for example, have “benefitted” from the multiple crises over the past 3 years by pushing up their prices to reap excessive profits.

While productive profits are good, there is a thin line between productive profits and profiteering through price gouging. Could it be the case that the stickiness in global inflation reflects in large measure, price gouging rather than genuine supply and demand factors? Economists have been investigating how pervasive the situation of companies marking up their goods way more than their own rising costs. There is an emerging view, particularly in the USA and Europe, that companies are indeed gouging their customers when they can. In 2022, the companies in the Fortune 500 generated US$1.8 trillion in profit on US$16.1 trillion in revenue; this, according to reports, was an all-time high.

As an economist who observes global macroeconomic developments daily, I am beginning to be convinced that rising market concentration and monopoly power could be driving “greedflation.” There is a real risk that the decline in global inflation could be slow because of increasing market concentration through the consolidation of large companies. Expanding market power of large companies, and by extension, expanding corporate margins will complicate central banks’ efforts to tamp down inflation because companies tend to increase prices more quickly to offset higher input costs than they reduce prices when their expenses decrease, enabling them to enjoy higher profits margins for longer.

The implication for Caribbean economies is that high prices will persist. But how long must ordinary Caribbean women and men be inflicted with the pain of inflation that is, in some measure, may be caused by the greed of already-rich companies in larger nations? One can legitimately ask whether Caribbean consumers should have to face inflated prices for critical hurricane supplies as the season commences, or for educational supplies as the new school term approaches, or healthy foods, or certain medical supplies.

Could it also be the case that there is some price gouging by Caribbean companies as well? I shudder to think.

In sum, persistent inflation remains a major concern for policymakers. To the extent that interest rates are not as effective a tool as they are in Advanced Economies at controlling inflation, policymakers in the Caribbean may want to explore other options, even if those options are second or third-best options. Strategic price controls come to mind. Those of us who are students of economic history know that the region’s experiment with price controls has not been particularly successful, perhaps because the generalised approach used was flawed. However, a new, more targeted, strategic approach consistent with the contemporary era and extant realities can be explored. Whether and to what extent more tailored and targeted controls can be applied temporarily on selected prices across key sectors is a question that Caribbean policymakers may have to seriously confront, sooner rather than later.