Patents on the soles of your shoes...: Terminology - Greedflation (inflation dirigée par l'avidité)

Friday, July 1, 2022

Terminology - Greedflation (inflation dirigée par l'avidité)

The term greedflation belongs to a new family of words derived from inflation (i.e., increases in the price of goods and services unaligned with increases in consumer purchasing power). A new family of terms that currently includes the terms stagflation (i.e., a period of stagnating economic growth) and shrinkflation (i.e.; downsizing of products sold for the price of a larger quantity). A new family of terms with a non-bloodline relative called price gouging (i.e.; abrupt increases in prices in an emergency situation, seen as opportunistic in the face of increasing demand). For example, the price of medical-grade masks at the onset of the COVID 19 pandemic, when there were no other purchasing options.

Considering the latest calculated US inflation rate of 8.6 percent (US Bureau of Labor Statistics, June 10, 2022), the question arising within the context of greedflation is whether it is corporations seeking to maintain their profit margins that are responsible for the increase in prices, gas and food in particular, causing decreases in consumer purchasing power (see image below). According to Wiseman at the Associated Press, a series of connected factors are contributing to the rise in prices. Among the factors cited: massive influx of government spending during the pandemic and record low interest rates, enabling businesses and individuals to stay afloat, but also supporting fast recovery, creating increases in demand and consumer spending, while the global supply chains were interrupted. Bottlenecks in the global supply chain, exacerbated by fast recovery from the pandemic and slow reaction to increase interest rates, in view of curbing inflation. Belief that inflation was just temporary due to supply chain shortages. (AP News, June 26, 2022)

However, the elephant in the room is the Russian invasion of Ukraine with sanctions on Russian financial and trade activity. In particular, the sanctions on Russian gas exports in Europe. A situation with a destabilizing effect on global gas prices, driving gas prices up, which will no doubt become increasingly more significant once winter has settled in, considering that the global conversion to clean energy is still lagging years behind.

Is this situation alarming? According to Janet Yellen, Head of the US Treasury Department, the current runaway inflation does not necessarily mean another recession (i.e., a situation where consumers are overwhelmed with prices too high for spending, at worse causing businesses to fold or to layoff staff, resulting in decreased economic activity.) Yellen has cause for optimism as she endorses the US administration’s bid for a federal, three-month, 18 cents gas tax cut, on the five-dollar (USD5), or more, price of gas per gallon, and believes that consumer savings accrued during the pandemic will sustain demand during inflation (AP News, June 19, 2022).