‘Greedflation’ is not what we need
It isn’t the time for record profits. Who is hiking prices?
Ithought I knew all the ‘flations . . . inflation, reflation, deflation, disinflation, stagflation. But a new one — “greedflation” — just popped up in headlines. It’s been coined in the US to describe corporate price gouging; companies using the cover of inflation to boost margins and profits.
That kind of opportunist pricing behaviour is despicable and should be seen as anti-social profiteering.
I’m a bit sceptical about the word. It sounds like a media construct. , Maybe I’m jealous I didn’t think of it.
It is, however, a sign that inflation is entering the popular culture and lexicon in a way it hasn’t for decades.
Inflation has gone viral. Let’s call this moment popflation. Ah, maybe not. Let’s just recognise inflation is back in the zeitgeist.
It has become embedded in the consciousness of the general public.
That’s a worry because if we all start to believe inflation is with us for the long haul — then it will be.
Central bankers worry a lot about inflation expectation surveys, which point to future patterns of consumer and business behaviour.
As the ANZ economics team pointed out on Friday, it’s not last week’s ugly headline inflation figure (7.3 per cent) that will be worrying the Reserve Bank.
It is the surge in non-tradables and core inflation measures that is alarming. This kind of inflation is like getting secondary infection on top of your viral infection.
It’s the kind of inflation that gets embedded deep in the lungs of the economy and persists even when the initial viral load has subsided.
The domestic portion of total inflation — which economists call non-tradeable — rose at an annual rate of to 6.3 per cent to June 30 (up from 6 per cent in the year to March).
That was ahead of the RBNZ’S May forecast that it would ease to 5.7 per cent.
ANZ notes that non-tradeables prices represent just over 60 per cent of the consumer price index and capture goods and services that do not face international competition.
Hairdressing and personal grooming services were the quintessential examples, they said.
That sector saw annual price increases of 6.1 per cent in the latest CPI. Also concerning, said the ANZ team, was the surge in core inflation measures.
Core inflation measures “aim to
strip out volatile components (like petrol prices) to try to get at the underlying CPI inflation trend”.
“Measures of core inflation now range between 4.8 per cent and 6.1 per cent, and have shown no signs of peaking. Even including 2010’s GST hike, core inflation hasn’t been stronger in the past 20 years for which we have reliable data,” ANZ economists said.
The big shocks that started the inflationary cycle — the pandemic and stimulus, the supply chain crunch, the Ukraine war — are the most dramatic. They led to spikes in commodities such as oil and food. But those prices can ease quickly. The signs are they have started to.
They are transitory. They’re just not transitory enough to avoid creating longer-term problems in the domestic economy.
Inflation spreads through the domestic economy because everyone is trying to stay ahead of the cost-of-living spin-cycle to avoid going backwards financially.
Firms start putting up prices sooner on the assumption they’ll have higher costs. Workers need higher wage rises to cover the costs they expect to rise in the year ahead.
Collectively, this doesn’t work. While it makes sense for individual businesses and workers to chase rising costs, overall it prolongs inflation. We must act collectively, treat this like a pandemic.
Bringing it back to that horrible term “greedflation”, we need those who can afford it to do their bit and soak up some inflationary pain. That’s not something that can be forced or regulated like a lockdown.
We know that, because in 1982 the National Government tried. It passed laws to ban wage and prices rises.
It failed, woefully unfair and mired in complex exemptions required to keep the economy from collapsing.
Some businesses — especially small ones — simply have to pass on costs or they will go under.
Some workers and people on fixed incomes need wage rises just to pay the rent and feed their families.
So we should be wary of knee-jerk reactions. But a public health campaign might be useful. The more people understand what is happening, and how we fight it, the better.
If we don’t, the Reserve Bank will be forced to up the medicine — ever higher interest rates. The side effects of that won’t be much fun.
Big business has a role to play here. This isn’t the time to be making record profits. We should see who is hiking prices and by how much.
And the best paid also need to recognise this is a time for restraint.
Inflation is making everyone poorer. So tighten your belt, do your bit.
We will beat this. And we’ll beat it faster if we act responsibly.