Another day, another disturbing measure of price inflation.
The federal government has just released the latest Producer price index (PPI), an index that tracks the prices of a basket of typical inputs that businesses rely on, such as energy, storage, etc. He finds that prices rose 0.8% from April to May and 10.8% from May 2021 to May 2022. The PPI is the Federal Reserve’s preferred measure of price inflation, and the latter update keeps it near a 40-year high.
To see how extreme this trend continues to be, just check out this chart from Fox Business:
Of course, this latest update comes just a day after another alarming inflation update. Published on Monday, the latest consumer price index (CPI) show an 8.6% year-over-year increase in consumer prices. This metric imperfectly measures the prices of a basket of consumer goods that a typical US household might buy, and it also remains near 40-year highs.
What is the signification ?
Well, these updates offer further proof that rising prices are hurting American families, eroding paychecks and blowing budgets. But we already knew that.
The really interesting insight here comes from comparing producer price data to consumer price data. The contrast between the two undermines the progressive “greed” narrative that argues that rising prices are largely due to corporate greed.
“Inflation rose first because of other factors, like Covid and the economic stimulus bills,” said the New York Times written in a article explaining what proponents of “greed” believe. “But companies have raised prices more than necessary to earn higher profits. They knew they could get away with it because consumers no longer had a benchmark for what prices should be. And they haven’t faced enough competition to keep prices low.
Or, as Senator Elizabeth Warren argue“profit” and “price pricing” drove prices up because “they or they [can] get away with it because our markets lack competition.
But this story never made sense. On the one hand, companies are no more “greedy”, i.e. in search of profit, than they were 5 or 10 years ago, when inflation was not increasing not. In addition, some sectors have experienced much larger price increases than others. Are companies in some industries simply less greedy than in other sectors?
“Greed” conspiracy theorists cite market concentration, i.e. monopoly power, as the reason corporations can supposedly be behind it all. But, as MIT economist David Autor Remarksmarket concentration has not changed significantly over the past two years…unlike inflation!
This is why a investigation leading economists have found that the vast majority reject the “greed” narrative out of hand.
What does this have to do with PPI, CPI and other inflation indicators?
The new dataset put the nail in the coffin of the “greed” narrative.
Well, if corporations were really greedy and just raised prices to make money, we would expect them to raise prices for consumers at a rate greater than their own rising costs of production. But these datasets actually reveal the opposite: consumer prices increased by 8.6% while producer prices increased by 10.8%, suggesting that, according to rough estimates, companies have not increased their prices to fully match their increased costs, let alone exceed them.
Where is the evidence of this rampant surge of “greed” that we keep hearing about?
You don’t see it anywhere, of course, because the “greed” narrative has always been a political talking point simply intended to divert blame from the federal government to big business, a popular boogeyman.