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Home›International monetary system›Corporate price hikes are not the cause of soaring US inflation

Corporate price hikes are not the cause of soaring US inflation

By Terrie Graves
February 11, 2022
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Copyright AFP 2017-2022. All rights reserved.

Facebook posts claim that the rising cost of goods in the United States is due to rising prices rather than inflation. But experts dismissed the idea that businesses are the main culprit and said the price spike follows large federal spending, increased demand and supply problems, all of which have accompanied the pandemic. .

“Can we stop calling it inflation and start calling it what it really is? Price gouging and corporate greed,” reads a Jan. 25, 2022 post on the Occupy Democrats Facebook page that has been shared over 45,000 times.

A screenshot of a Facebook post taken on February 10, 2022

Another example of the allegation – which spread online as consumer prices saw their biggest annual rise in nearly four decades – appeared on Facebook here.

The latest government figures show US prices rose 7.5% in the 12 months to January. The cost of essentials such as food, gasoline, clothing and housing have all seen steep increases. Wage costs have also risen sharply, with the pandemic partly to blame, as workers have been able to demand higher wages for vacancies that employers have struggled to fill since the economy began to rebound in 2021.

Desmond Lachman, a senior fellow at the American Enterprise Institute think tank, said blaming current price increases solely on businesses is “greatly over the top”.

“If they have the power to drive up prices, to abuse, why didn’t they do it before the pandemic?” said Lachman, former deputy director of the International Monetary Fund. “You might find cases where people are taking advantage of the situation to raise prices, but that’s not really what’s causing the inflation.”

Instead, the high prices are more likely the result of large federal spending, low Federal Reserve interest rates and overseas supply issues, he said.

Mark Witte, an economics professor at Northwestern University, agreed that corporate price hikes are an unlikely culprit of inflation. “Logically, it takes a change to explain a change. You see something happening that hasn’t happened before,” he said.

He attributed the current inflation to “a surge in demand” and a “restriction in supply”.

People are buying “a lot more stuff than we did before Covid” which puts a strain on the system, he said, noting that it wouldn’t make sense to conclude that companies don’t weren’t greedy before, because “it’s sort of a constant.”

Benjamin Page of the Urban-Brookings Tax Policy Center said: “The pandemic has shifted much of the demand from services, like people going to restaurants and movies, to goods, like buying equipment home office and cars. And that change has represented a big, big increase in demand for certain types of goods.”

Like Lachman, Page also cited government spending, such as pandemic relief programs, as the cause of inflation.

The theory that companies suddenly got more greedy “doesn’t pass the smell test,” Page said.

“There are a lot of things going on in the economy that impact inflation, but I think…this corporate greed argument is pretty much a red herring.”

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