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Source: The post is based on the article “ExplainSpeaking: What is Greedflation? Does India also have it?” published in Indian Express on 27th June 2023
What is the News?
There is a growing consensus across the world that Greedflation is spiking inflation.
What is Inflation?
What is Greedflation?
Greedflation simply refers to a situation where corporate greed fuels inflation.
Instead of the traditional wage-price spiral, it is the profit-price spiral that drives inflation.
This can result in a significant rise in the overall price level, leading to a decline in the purchasing power of the currency and contributing to inflation.
In developed countries like Europe and the US, there is a growing consensus that greedflation is the main reason contributing to inflation.
Is Greedflation happening in India?
The Indian corporate sector has generated superlative profits in the post-pandemic period. Profits during recent times have been nearly thrice the profits corporates earned earlier.
Higher profits then can come only from: 1) higher sales (with the same profit margins) 2) higher profit margins (with the same level of sales) or 3) a combination of higher sales and higher profit margins.
What is contributing to higher profits of corporates in India?
According to CMIE, 60% of the growth in net profit can be attributed entirely to the increase in profit margin.
The increase in sales contributed an additional 36% and the rest was a bonus from a combination of the two.
Do these higher profits point to the existence of greedflation in India?
Data shows the existence of a sharp spike in profits.So, prima facie there is a very good chance that corporate greed also played a key role in spiking the inflation rate in India.
