Greedflation

Why in news?

• Recently, there has been an increasing consensus in Europe and US that Greedflation is driving the rising cost of living rather than just Inflation.

About Greedflation:

• Greedflation refers to the situation where corporate greed drives inflation.
• Rather than a wage-price spiral, it is a Profit-Price Spiral where companies exploit inflation by raising prices excessively, going beyond covering their increased costs, and aiming to maximize their profit margins. These further fuels inflation.
• There is a growing consensus in developed countries, like Europe and the US, that greedflation is the true culprit.

Scenario:

• During crises like natural disasters or pandemics, prices often surge as businesses raise them due to increased input costs.
• However, in some cases, businesses exploit the situation by making excessive profits through significantly higher price mark-ups.

Impact:

• Greedflation disproportionately impacts low-income and middle-class individuals, reducing their consumption and lowering their standards of living.
• While it benefits the wealthy by increasing the value of their assets, widening the wealth gap and exacerbating income inequality.
• Sharp price increases and speculation driven by greed can create bubbles and unsustainable market conditions. This makes financial markets more susceptible to crashes and crises, posing risks to overall economic stability.
• Inflationary pressures caused by greedflation can result in divergent policies among countries. Each nation may adopt different strategies to combat inflation, leading to conflicting approaches.
• This can exacerbate global imbalances, trade tensions, and geopolitical conflicts as countries seek to protect their own interests and competitiveness.

PRACTICE QUESTION

Which of the following explains the term ‘Greedflation’?

(a) A period when even though prices are rising, it is happening at a slower rate each passing month.

(b) A deceptive marketing that overstates a company's commitment to responsible social practices

(c) A situation where inflation is driven by excessive greed and speculation rather than by supply and demand factors

(d) An episodic price rise pertaining to one or a small group of commodities

Answer