Critiquing the ‘greedflation’ narrative
29 June 2023
SUGGESTED
Government and Institutions
In the Media
Lifestyle Economics
15 November 2024
Julian Jessop writes in The Telegraph
IEA Economics Fellow Julian Jessop has written for The Daily Telegraph arguing against increasingly popular claims that higher profits are driving inflation – so-called ‘greedflation’ – after the International Monetary Fund (IMF) published a blog piece furthering that narrative.
Julian wrote:
“The IMF analysis adds little to this conversation. In short, its economists have attempted to break down increases in consumer prices into four components: domestic profits, labour costs, taxes and import prices.
“The paper concludes that increases in import prices account for only 40 per cent of euro area inflation over the last year. The biggest single contributor was an increase in domestic profits, accounting for 45 per cent.
“There are many problems with this approach, including the reliability of the data. But the fatal flaw is that it is looking at inflation the wrong way around.
“The overall level of inflation is high because too much money has been chasing too few goods and services, or, if you prefer, because demand has been outpacing supply. The split between profits and wages tells you something about the distributional implications, but little more.
“Put another way, just because higher inflation is associated, for now, with higher profits does not mean that higher profits are causing inflation, or that lower profits are the key to getting inflation down.”
Read Julian’s full piece here.
Julian wrote:
“The IMF analysis adds little to this conversation. In short, its economists have attempted to break down increases in consumer prices into four components: domestic profits, labour costs, taxes and import prices.
“The paper concludes that increases in import prices account for only 40 per cent of euro area inflation over the last year. The biggest single contributor was an increase in domestic profits, accounting for 45 per cent.
“There are many problems with this approach, including the reliability of the data. But the fatal flaw is that it is looking at inflation the wrong way around.
“The overall level of inflation is high because too much money has been chasing too few goods and services, or, if you prefer, because demand has been outpacing supply. The split between profits and wages tells you something about the distributional implications, but little more.
“Put another way, just because higher inflation is associated, for now, with higher profits does not mean that higher profits are causing inflation, or that lower profits are the key to getting inflation down.”
Read Julian’s full piece here.
SHARE
