Greedflation and its counter arguments: how consumers ultimately decide prices

Source: This article has been framed based on India Express article “Clearing the water”, published on 4^th July.

Syllabus Topic: GS Paper 3 – Indian Economy – Pricing and Inflation

News: The article discusses the concept of “greedflation,” which refers to price inflation caused by corporate greed for high profits.

The US is facing the record high inflation, since the pandemic. It has given birth to the theory of greedflation.

What are the arguments of theorists favoring greedflation theory?

Proponents of the greedflation theory argue that corporate profit margins have risen significantly since the pandemic, contributing to high inflation.

U.S. corporations have allegedly increased the prices of their goods by more than what was necessary to compensate for higher input costs caused by supply-chain bottlenecks.

As per this theory, market power of large corporations should be controlled and price hikes should be banned to prevent “profiteering”.

What are the arguments of theorists opposing greedflation theory?

Critics of the greedflation theory argue that businesses cannot arbitrarily set prices. Prices are set based on what consumers are willing to pay for products.

Businesses cannot force consumers to pay a certain price for their goods.

The best explanation behind U. S’s inflation is U.S. Federal Reserve’s expansionary monetary policy during the pandemic. Which has increased the money supply, leading to expansion of purchasing power of users.

It might also be a “cost-push” inflation which is due to inflation to a rise in input costs. For example, in the past, a rise in the wages demanded by workers has been blamed for the rise in the prices of goods and services.