Combating corporate greed

The Federal Reserve's interest rate policy and the blunt instrument of demand suppression dominate discussions on prolonged inflation, yet they offer only limited solutions. This strategy treats inflation as a macroeconomic imbalance to be corrected by raising borrowing costs and curbing consumer spending. It conveniently overlooks growing evidence that many large corporations have exploited the inflationary environment to bolster their profits. This approach ignores a critical and increasingly well-documented driver of high prices: "excessive corporate profit margins," often dubbed greedflation.

Greedflation describes how companies, under the guise of legitimate supply chain disruptions and general economic uncertainty, raise prices far beyond their actual cost increases. Studies from the Federal Reserve Bank of Kansas City and the Bank of England have found that rising markups rather than labour costs or supply shocks were the primary contributors to inflation in 2022 and 2023. Meanwhile, executives openly boast on earnings calls about their "pricing power" and ability to push through increases that exceed cost pressures. For instance, S&P 500 corporate net margins have reached near-record highs, showing that many businesses have not simply passed on costs, they have actively expanded profit cushions at the expense of consumers.

This is more than a consequence of inflation, it is a cause. When dominant companies prioritise record profits over price stability, they institutionalise high inflation. In a self-reinforcing cycle, every percentage point of an unwarranted price increase feeds into future contracts, rent hikes and wage demands. This imposes an undue burden on working families and undermines the very efforts of the central bank to stabilise the economy. Higher interest rates punish borrowers and slow job growth while doing nothing to restrain the companies actually driving prices upward.

To fight inflation effectively, policymakers must go beyond interest rates and confront the structural issues that allow such profiteering. That means strengthening antitrust enforcement, scrutinising corporate consolidation and considering temporary, targeted measures to curb price gouging, such as excess-profits taxes or windfall-profit caps, which have succeeded in past crises. Regulators already have the tools; they simply lack the political will to use them against powerful corporate interests. Until the role of greedflation is acknowledged and addressed, the battle against high prices will remain incomplete and unfairly weighted against ordinary consumers.

Sadia Sultana Taiba

Bachelor of Business Administration

North South University

sadia.taiba@northsouth.edu