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What's the article about?
- It talks about the issue of Greedflation in the present economic scenario.
Relevance:
- GS3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment
- Prelims
Context:
- Inflation rates have been on the rise in several countries during the Covid/post-Covid era. The article discusses the main causes of inflation and the debate over the role of “greedflation” in driving up prices.
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Greedflation:
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Analysis:
- Causes of Inflation:
- The economic disruption brought on by the pandemic, supply-chain disruptions, and the fiscal and monetary stimulus measures taken by many governments and central banks in reaction to the pandemic may very easily be cited as the main causes of this inflation.
- Then, in early 2022, Russia invaded Ukraine, which had an additional impact on the world’s supply chain. A worsening of the situation was caused by rising global prices for food, fertiliser, natural gas, oil, and other commodities.
- Role of “Greedflation”:
- In late December 2021, German economist and UMass Amherst economics professor Isabella M Weber published an article in The Guardian, in which she argued that “sellers’ inflation,” which is caused by businesses taking advantage of supply shocks and disruptions to raise prices, is a significant factor in the present price rises.
- The portmanteau “greedflation”, similar to “sellers’ inflation”, is a somewhat outlandish notion that, in many ways, doesn’t align with the macroeconomic framework that economists frequently consider.
- Initially, many experts in economics opposed Weber’s idea. However, as prices didn’t fall when the situation began to improve, the Biden administration worked to lower oil prices, and Europe attempted to impose price caps.
- Debate Over “Greedflation”:
- Some economists have questioned the veracity of the claim that corporate thirst for higher profits is what drives inflation.
- Some academics feel that a better phrase should be “profit-driven inflation.” And some claim that greedflation simply isn’t a coherent explanation for inflation. Leading publications entered the debate with conflicting viewpoints on the greedflation idea.
- According to Catherine Rampell in a Washington Post article from June 2022, “Today, companies’ revenues are still rising—but their costs (labor, fuel, materials) are rising even faster.”
- “What actually seems to be happening is that families and businesses are sharing the spoils of the post-pandemic economy,” The Economist stated in its investigation of greedflationists’ claims in April 2023. In addition, it stated in July 2023 that “inflation is the result of economic policy mistakes and war, not corporate avarice.”
Way Forward:
- The ongoing debate over the role of “greedflation” in driving up prices continues. While some economists believe that it is a real phenomenon, others question its veracity.
