Greedflation
Also called: Profit-led inflation, Sellers' inflation · Topic: Inflation and Index Numbers: CPI, WPI, IIP and the Deflator · NCERT: Beyond NCERT
Meaning
Greedflation is inflation caused by firms raising prices by more than their costs have risen, so that they earn wider profit margins. It is also called profit-led or sellers' inflation. It shows up mostly in concentrated markets, where a few big firms face little competition. When a general price rise gives cover, customers find it hard to tell a cost-based increase from a margin grab.
Example
Say input costs rise after a commodity shock. A few dominant sellers raise prices well beyond that cost increase, and they keep prices high even after costs fall again. Their profit margins widen while consumers pay more.
Don't confuse with
- Cost-push inflation: here prices rise because costs such as wages, raw materials or energy have actually risen. Greedflation is the part of the price rise that goes beyond cost increases.
Related concepts
- Demand-pull inflation
- Output gap
- Cost-push inflation
- Supply shock
- Imported inflation
- Wage-price spiral
- Structural inflation
- Inflation expectations
- Anchoring of inflation expectations