Inflation is a big deal for consumers. It impacts the price they will pay for consumer goods. Since inflation is calculated as an aggregate for a basket of goods that does not mirror every American’s purchasing pattern, many Americans living on a fixed income have to make tough choices on which products will fit their budget. According to this poll on Reddit, 1.4k of the 3.2k total votes attributes corporate price gouging to the rise of inflation in the united states.
Price gouging topped out other options such as:
- Supply chain and other supply-side problems
- Expanded money supply
- Wage-price spiral
- other issues
It is easy to see why people would blame corporations for inflation. Elizabeth Warren published a tweet two days ago about how grocery stores are gouging families. She then goes on to oppose the consolidation of Kroger and Albertsons.
Inflation is a big deal in this election cycle. Being on the right side of the discourse will likely mean the difference between winning and losing the election. President Biden likes to tout that the Inflation Reduction Act will reduce the pain felt by inflation on citizens:
Ted Cruz weighs in on inflation with a tongue-in-cheek comment about 8.2% inflation.
What causes Inflation?
Inflation is the rate of price increases over time. According to the Reserve Bank of Australia, there are three main causes of inflation. Increased demand, increased supply pressure, and inflation expectations. If consumers believe the price will go up more in the future, it impacts what they believe is a fair price today.
The problem with blaming corporations for price gouging is that most corporations’ primary goal is to maximize shareholder value. To do this, they are constantly trying to set the price at the value that will result in the most profit. Sometimes their objective is to set the pricing lower to encourage sales of more units, and sometimes their strategy is to raise the price, knowing that they will sell fewer units but at a more significant profit per unit.
Is Inflation Bad?
Inflation is a part of life with a fiat-based money system like The United States of America has. A fiat system means the money supply is not fixed and is based on a hard asset like Gold. A low level of inflation has worked very well for the American economy. However, when things like hyperinflation occur, it creates instability, and a shift in wealth can occur. Instability in the economy is typically considered to be a bad thing.
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