Economists identify the real cause of inflation

business trends Irobiko Chimezie

Experts dismiss the idea that greedy companies have been the main reason for a jump in inflation this year.

Experts point out that for four decades the market power of businesses over consumers has risen an average of about 1% annually, but that inflation has remained low during that time until the recent upswing, The Hill reported on Wednesday.

This would seem to poke a hole in the claim by most Democrats that the current spike in inflation is due to a lack of competition and an exaggerated drive for profits among corporations. Most Republicans blame inflation on generous fiscal stimulus during the early days of the coronavirus pandemic.

“I am pretty skeptical about the ‘greedflation’ narrative,’ ” Gabriel Unger, a Ph.D. student in economics at Harvard University and the co-author of an influential paper on private sector market power, told The Hill.

Unger said “markups (and market concentration) have been rising sharply since around 1980. But over almost this whole period, up until the pandemic, inflation has been historically very low. So for most of the past 40 years, we’ve had an economy with high and rising markups, and very low inflation.”

He added that “it’s possible that in the absence of the former, inflation might have been slightly lower, but I still think this suggests it’s unlikely that high markups on their own cause an explosion of inflation.”

Economists say that this viewpoint is gaining wider traction, according to The Hill.