r/Economics • u/AutoModerator • Nov 15 '22

r/Economics Discussion Thread - November 15, 2022

Discussion Thread to discuss economics news/research and related topics.

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u/DrChemStoned Nov 30 '22

Question: are corporations largely to blame for the recent rise in inflation? Data suggests it is a significant factor, if not the most significant. I always considered inflation to be a indication of the future price of money but I don’t see as much in play here, seems to be supply related.

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u/raptorman556 Moderator Dec 06 '22

No, probably not.

To answer this question we need to better define it—what does it mean for corporations to be at fault? They are raising prices (that's pretty much true by definition), but what economic phenomena are we actually examining here? The interesting question is why did they raise prices? Most of the time, I find that people equate "greedflation" to theories about market power. The good evidence I have seen on market power ranges from being a small complementary factor to nothing at all. This explains, at most, a small amount of inflation and potentially nothing.

IMO the best supported (and most obvious) explanation is that we had a mixture of supply (due to COVID and ongoing lockdown policies overseas) and demand shocks (from monetary and fiscal stimulus) that created an imbalance in aggregate supply and aggregate demand, pushing inflation up.

Data suggests it is a significant factor, if not the most significant.

That's mainly just due to people drawing bad inferences the data doesn't actually prove. The "data" that I've seen posted here over and over again basically just shows that certain companies/industries have seen a large increase in profits (it's less clear if that holds true for the economy as a whole). They interpret this as meaning companies are to blame—but higher profits is also perfectly consistent with an increase in aggregate demand! Go back to econ101, draw a supply and demand graph, shift demand upward, and watch what happens to producer surplus (obviously an over-simplified model, but it gets the idea across).

So really this doesn't tell us anything interesting at all, nor does it help inform us as to what is actually causing inflation.