Study by the Federal Reserve: Inflation Not Caused by Corporate Greed

Research published Monday by economists at the Federal Reserve Bank of San Francisco suggests that corporate price gouging is not the main cause of U.S. inflation.

Although markups for motor vehicles and petroleum products increased significantly during the recent inflation surge, overall markups for U.S. goods and services have remained relatively stable during the post-pandemic recovery, according to the bank’s latest Economic Letter.

The bank’s research chief Sylvain Leduc, along with colleagues Huiyu Li and Zheng Liu, pointed out that rising markups have not been a significant factor driving the recent inflation surge and subsequent decline during the current recovery.

The Fed’s targeted measure of inflation, the year-over-year change in the personal consumption expenditures price index, peaked at 7.1% in June 2022 and has since dropped to 2.7% in March.

President Joe Biden has attributed still-elevated prices to corporate greed, accusing companies of increasing profits by reducing portion sizes while keeping prices the same, and not passing on savings to consumers when costs decrease.

However, Fed policymakers and many economists argue that the recent inflation surge can be largely explained by supply chain disruptions and a decrease in labor supply during the post-pandemic recovery, coinciding with increased consumer demand.

They attribute the recent moderation in inflation to improvements in supply chains, an increase in immigration boosting the labor supply, and reduced demand due to higher borrowing costs as the Fed raised its policy rate.

Leduc and the other researchers did not mention Biden or the term ‘greedflation,’ but their findings refute the notion that corporate profiteering is a primary driver of inflation. Other economists have reached similar conclusions using different approaches.

“Data from the current recovery indicates that the growth in corporate profits is not notably different compared to previous recoveries,” the San Francisco Fed researchers stated. “Markups have also not had a significant impact on the slowdown in inflation since the summer of 2022.”