Is “Greedflation” Real – and How Should that Question be Answered?

An allegation has been floated recently that inflation has been exacerbated by corporate greed. A neologism has even been coined for it, “greedflation.” The claim has been backed up by anecdotal and empirical data and it has been rebutted by anecdotal and empirical data. I will not try to answer the question of whether this allegation is true, but how its truth should be determined.

The “greedflation” claim is that corporations are using inflation as an excuse to raise their prices higher to jack up their profits, exceeding even the price level rise that otherwise would have occurred. In so doing they make inflation worse. Advocates of this view buttress their argument by pointing to heightened corporate profits and “sky high” gasoline prices. They say this is a result of increasing concentration of corporate power. Corporations, they say, in major industry sectors, have too much monopoly power, enabling them to manipulate prices.

The data-based evidence for and against the greedflation hypothesis

The anecdotal evidence for the greedflation hypothesis is that many corporations have racked up record profits of late. But in rebuttal, there are many other corporations that have not profited so well.

More broadly, the greedflation advocates point to the fact that corporate profits in aggregate have surged recently. But a graph of corporate profits adjusted for GDP shows that profits were just as high in 2012 when inflation was very low; thus, corporations achieved high profits at that time without the inflation excuse.

President Joe Biden recently used Exxon Mobil Corp as a whipping boy for the accusation that oil companies are exploiting high gasoline prices to increase their profits. Indeed, Exxon’s profits have recently surged. But the same dataset shows that Exxon’s profits were much higher 10 years ago when gas prices were lower than they are now; exploitation of price inflation can’t explain why Exxon’s profits were 60% higher then.