New YorkCNN —
Some progressives have frequently blamed corporate greed for fueling the high cost of living that Americans are fed up with.
Yet new research from the Federal Reserve Bank of San Francisco casts doubt on the greedflation theory.
Economists at the SF Fed found that corporate price gouging was not a primary catalyst for the inflation surge of 2021 to 2022.
The Fed researchers did find that some companies exercised pricing power by raising prices above their production costs – a gap known as markups.
For instance, markups spiked for gasoline, cars and other goods in 2021. Likewise, there were increased markups for repair, general merchandise, laundry, personal care and other services, according to the Fed.
‘Not unusual’
Of course, the inflation crisis was not limited to just a few key sectors. It was economy-wide. (The annual inflation rate fell slightly in April, but it still remains well above the Fed’s 2% target.)When zooming out and looking at markups across the economy, the SF Fed economists found little evidence that price gouging was the main culprit.
“Aggregate markups – the more relevant measure for overall inflation – have stayed essentially flat since the start of the recovery,” the paper concluded. “Rising markups have not been a main driver of the recent surge and subsequent decline in inflation during the current recovery.”
In fact, the SF Fed found that the path of collective markups over the past three years “is not unusual compared with previous recoveries.”
‘It angers them and angers me’
This runs counters to the argument from some progressives including Sen. Elizabeth Warren, who for years has refocused the inflation argument on corporate greed.“Right now prices are up at the pump, at the supermarket, and online. At the same time, energy companies, grocery companies, and online retailers are reporting record profits,” Warren said in December 2021. “That’s not simply a pandemic issue. It’s not simply some inevitable economic force of nature. It’s greed—and in some cases, it is flatly illegal.”
More recently, President Joe Biden has called out corporate greed as a reason prices remain high.
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“If you take a look at what people have, they have the money to spend. It angers them and angers me that you have to spend more,” Biden told CNN’s Erin Burnett, pointing to the shrinking size of Snickers bars and other food products. “It’s like 20% less for the same price. That’s corporate greed. That’s corporate greed. And we have got to deal with it. And that’s what I’m working on.”
In February, Biden said there are “still too many corporations in America ripping people off. Price gouging, junk fees, greedflation, shrinkflation.”
“America – we’re tired of being played for suckers!” Biden said.
Although the paper did not directly mention corporate greed, shrinkflation or Biden, the research undercuts the argument that greedflation drove the early inflation.
White House spokesperson Jeremy Edwards told CNN in a statement that the study supports Biden’s argument that “record profits are increasing inflation in some sectors, such as gas and general merchandise.”
“These markups should have reversed as we recovered from the pandemic—the fact that they haven’t means prices can come down if corporate profits come back to earth,” Edwards said. “President Biden has repeatedly called on large corporations to pass their record profits along to their customers by lowering prices. And he is taking on corporate rip-offs like hidden junk fees that costs families billions of dollars a year. The President will continue to call out corporate rip-offs and fight to keep money in Americans’ pockets.”
