The myth of greedflation

How a surpise could fix the economy

The relative price stability after 2008 has come to an abrupt end throughout the West. Despite the usual suspects of supply shocks and wage pressure, a new source of inflation has been blamed for the current crisis. That of 'greedflation'. Both the IMF and ECB have blamed excess profiteering for the current levels of inflation, but this runs counter to economic logic. Professor Paul Middleditch argues that greedflation is a convenient excuse for central bank failures over the last decade and that they need to re-capture the element of surprise to prevent a crisis.

Over the last couple of months, we have heard from some of our most prominent institutions on the subject and causes of the recent episode of high and persistent inflation faced by economies around the globe. With inflation at levels not seen since the 1980s, policymakers and politicians are naturally looking for explanations for the length of time it has taken to quell the rising price levels; some central banks have fared better than others in quelling that inflation.

The latest candidate for the possible contributing factors is that of ‘Greedflation’; a form of profiteering by companies using the volatile environment of fast rising prices to opportunistically prop up profit margins. On the face of it, this reason for inflation persistence seems plausible. You might imagine that producers will wait to break out from a nervous position of passing on costs to act under the covered position of safety in numbers. This theory of inflation persistence is bothering me somewhat, for the reason that it is a little too convenient; institutions tend to take the blame for everything these days, and besides it goes against established economic thinking.

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