A new term is hitting the headlines these days: Greedflation. The concept is based on the theory that big companies have taken advantage of the inflationary environment of our economy to make higher profits. An uncertain economy has made many people wonder who or what is truly to blame.
Is price gouging the reason for continued inflation? Or is inflation being driven by something else? Most importantly, what can we do about it on the home front?
Prices have been higher than they’ve been over the last 40 years. Recently, the White House has pointed the finger at greedy companies. One source compiled a report claiming that companies have had their most profitable year since the 1950s. The report also states that corporations are using inflation to justify passing higher prices to consumers. They outline ten companies that have shown significant profits over the last year and argue they have a social responsibility to accommodate people during our economy’s financial woes. Unfortunately, the report doesn’t thoroughly investigate how the profits were gained or explore innovative modifications they may have made to continue making profits.
Milton Friedman may have said it best, “There is one and only one social responsibility of business… to increase profits.” Let’s face it; businesses are incentivized by making a profit from their efforts. Asserting that companies should be expected to underperform because of an inflationary environment can be counterproductive.
Companies that don’t make a profit or break even risk losing shareholders. Confidence in the company’s ability to sustain will wane, and shareholders will reinvest their money elsewhere. This makes the company lose value, triggering an inability to continue producing quality products. No one wins when companies are vilified for making profits.
Other Causes of Ongoing Inflation
Headlines have also touted the “perfect storm” conditions for an ongoing inflationary environment. The war in Ukraine, global warming, and persisting Covid have been the primary culprits in this narrative. To exacerbate the situation, the stock market recently took a sharp drop. All of the moving parts around inflation do make it hard to pinpoint. Sifting through other data points is essential to get a more accurate picture.
Imports from Ukraine and Russia combined don’t necessarily account for the inflation of all goods. Inflation has remained at about 8.6 percent over the last year, which doesn’t support the price gouging scenario either. Drought has been prevalent in the mid-west this year; however, it doesn’t account for the astronomical input costs, which are not proportionate to the rate of inflation farmers are experiencing. Although these factors haven’t helped the global supply chain, the numbers don’t add up to the impact on our wallets.
Self Inflicted Wound
Although unintentional, the current inflationary environment seems to be self-inflicted. Going through the last couple of years, we can track the milestones that have created the economic whirlwind we’ve experienced. It started with the pandemic that caused governments worldwide to adopt reactionary policies forcing businesses to shut down. Few people showed up to work, and the production of goods was at a near halt for some time.
In the United States, trillions of dollars were allocated for the pandemic relief bill and the American Rescue Plan. This created a surplus of cash injected into our economic system. People were asked to stay home yet were provided an income by the federal government. Meanwhile, manufacturers were left with near empty facilities without the ability to supply the ongoing demand for goods.
When demand exceeds the ability to supply it, prices go up. Manufacturers are still struggling to achieve pre-pandemic levels. As evident in fewer items on grocery store shelves and unusually long backorders for certain goods, the supply chain is still recovering.
How to Cope
The verdict might be out on the true culprit for persisting inflation. Nonetheless, we’re left with high prices. The stress alone is a lot to endure; how to move forward is a different beast. There are practical ways to cope with the burden of inflation.
First, consider any services you pay for that can be done at home. Yard work, cleaning your car, packing lunch, and going out to eat can save dollars. Any unused subscriptions like that gym membership you never use or streaming services that rarely get watched are both low-hanging fruit.
Be Energy Efficient
Before leaving your place for the day, ensure the lights are off, and the AC is turned up. Repairing an uninsulated window and swapping out incandescent light bulbs for led light bulbs can also make a difference. Shorter showers and washing clothes in cold water both help too.
Increase Your Wealth
Times are tough. Perhaps a second job is in order. There are many side-hustles these days, and many can be found online from the comfort of your home. Instead of binge-watching a beloved new TV show, spend a few hours making a few extra bucks. Your bottom line will be thankful.
Pay Off Debt
High-interest debt, particularly those pesky credit cards, is your biggest hindrance in an inflationary environment. If you have unsettled debt, now is the time to get it rectified. Contact a professional if you’ve assessed your budget and think there is no room to breathe. They’ll help you discover options you may not have considered and give you that breathing room you’re desperately seeking.