As we enter 2025, inflation remains a primary concern, frustrating consumers and confounding policymakers and Economists alike. From 2019 to 2023, the Consumer Price Index (CPI) rose by 25.7 percent, reflecting a broad increase in the cost of goods and services. Grocery prices (not included in CPI) also rose by more than 25 percent and put additional strain on household budgets.
Amid this economic strain, the term “greedflation” has gained traction, fueling public frustration and influencing even PhD economists to misinterpret inflation’s roots and offer misguided solutions. The paper Prices, Profits, and Power: An Analysis of 2021 Firm-Level Markups by economists at the Roosevelt Institute found market power is a key driver of inflation due to corporate markups and profits skyrocketing in 2021, their highest levels since the 1950s. Their proposed “all-of-government administrative, regulatory, and legislative approach to tackling inflation” — encompassing interventions in demand, supply, and market power — reads more like a recipe for an economic nightmare than sound policy.
This narrative overstates the role of corporate markups in inflation, grossly underplays the impact of government fiscal and monetary policies, and disregards basic economic principles. Worse still, the proposed interventions risk exacerbating economic instability. It’s time to move past the sensationalized ‘greed’ narrative and focus on the true drivers of inflation and why free market solutions are key to recovery.
Markups Only Explain 10 Percent of Grocery Inflation
The greedflation argument claims that markups are the primary driver of inflation, but a closer examination shows their role, particularly in rising grocery prices during and after the pandemic, was relatively minor.
To determine whether market power significantly contributed to grocery price inflation, it is crucial to analyze the relationship between prices and markups before and after the pandemic. Data shows that while grocery markups did increase during the pandemic, their impact on overall price inflation was limited. Had grocery stores maintained their 2019 markup levels, prices would have risen by 22 percent rather than 23.5 percent, indicating that markups accounted for less than 10 percent of the total price increase.
Instead, the primary drivers of grocery price inflation were supply chain disruptions, increased production costs, and shifting consumer behavior. Shipping costs soared by as much as 200 percent during the pandemic, while transportation labor shortages pushed wages up by 25 percent. Rising input costs, such as a 50 percent surge in fertilizer prices and a 30 percent increase in packaging material costs, further strained supply chains. Pandemic-induced bottlenecks, like prolonged port delays, exacerbated supply constraints, contributing significantly to higher prices.
Additionally, the perception of increased profits and markups in the grocery sector is partly explained by evolving consumer behavior. For example, the growing demand for private-label brands — which are more affordable for consumers but offer higher margins for retailers — has influenced profit margins. These shifts in consumer purchasing patterns may create the illusion of higher profits, but they underscore how evolving shopping habits and preferences shape the grocery sector’s economics.
Attributing inflation in grocery prices to corporate greed oversimplifies a complex issue driven by structural and economic factors beyond just markup adjustments.
Greedflation Distracts from the True Driver of Inflation — Government Policies
The greedflation argument wildly underplays the government’s significant role in driving inflation, particularly through its expansive fiscal and monetary policies. Beyond corporate markups, fiscal policies injected massive amounts of money into the economy, fueling excessive demand while supply chains were still constrained. For instance, the CARES Act, costing approximately $2.2 trillion, not only carried a hefty price tag but also incentivized Americans to stay home longer than necessary, delaying workforce recovery. Similarly, the $1.9 trillion American Rescue Plan further flooded the economy with stimulus. Adding to this, $1,400 checks were sent to 165 million Americans, totaling over $230 billion, further increasing demand pressures.
What’s more, while large government spending bills significantly contributed to inflation, the Federal Reserve amplified these effects through its monetary policies. To accommodate the influx of fiscal spending, the Fed increased the money supply, flooding the economy with liquidity that allowed consumers to bid up prices — more money chasing fewer goods. At the same time, the Fed slashed interest rates to historically low levels, making borrowing cheaper for consumers and businesses, which boosted demand for goods, services, and housing.
This surge in aggregate demand came at a time when supply chains were crippled by lockdowns, worker shortages, and regulatory bottlenecks.
The combination of ultra-loose monetary policy, excessive liquidity, and delayed tightening created a perfect storm of inflationary pressures. Expansive fiscal and monetary measures, coupled with supply chain disruptions, injected unprecedented amounts of money into an economy with constrained production capacity.
Centralized Inflation ‘Solutions’ Disregard to Basic Economic Principles
Finally, the call for an “all-of-government administrative, regulatory, and legislative approach to tackling inflation,” developed by some economists, stems from the observation that global markups — an indicator of market power — have risen by 33 percent since the 1980s. In their view, the surge in “excess profits” following the COVID-19 pandemic underscores the need for policy interventions to curb inflation.
Their proposed solutions focus on limiting profit-driven price increases through measures such as excess profits taxes, stronger competition policies, and price controls in key sectors. What makes this proposal particularly troubling is that it comes from economists — those expected to understand basic economic principles — who not only ignore fundamental market mechanisms and the true drivers of inflation but prescribe policies that will lead to an economic collapse. These interventions aim to force businesses to absorb rising costs instead of passing them on to consumers, intending to stabilize inflation and ease its burden on wage earners. However, this approach disregards fundamental market dynamics.
Claims that market power drives inflation imply that one side of the market controls prices, a fundamental misunderstanding of the price system and market mechanisms. In a free market, prices emerge from the interaction of consumers’ willingness to pay and producers’ willingness to supply. No single player, including so-called ‘greedy’ corporations, controls prices. To mischaracterize this process is to disregard the very mechanics of how markets function.
Their proposal disregards market mechanisms and disrupts the price system, leading to consequences that chill investment, stifle innovation, and create long-term instability. History offers stark warnings: in countries like Cuba, government interventions aimed at making prices “fair” or “cheaper” destroyed the very incentives suppliers need to produce the goods and services people rely on daily. Sweeping government controls and centralized interference destabilize markets, replacing the efficient allocation of resources with arbitrary standards and government overreach. Allowing the government to define acceptable profit levels undermines the free market’s ability to function, risking shortages, market collapses, and widespread suffering.
Inflation was not driven by greedflation but was primarily a government-made phenomenon. The greedflation argument and its proposed remedies are not merely flawed — they are dangerous, repeating the mistakes of failed policies that have devastated economies and left entire populations starving.
Inflation Solutions Start with Free Markets
The greedflation narrative collapses entirely when tested against even the most basic economic principles. Rather than corporate greed, rising grocery prices reflect market mechanisms, evolving cost-structures, federal and monetary policies, and the unique pressures industries encountered during and after the pandemic.
Profit motivation is not the problem — it is the engine of economic progress, driving innovation and ensuring goods and services reach consumers efficiently. The real issue arises when government intervenes, attempting to dictate prices and vilify profit.
To lower inflation effectively, we must address supply chain issues, reduce inefficiencies, and foster supply-side growth through incentives, not burdens like taxes and price controls, while reducing the fiscal and monetary interventions that have fueled inflation.
Free markets, not government controls, provide the best path to stability and growth.
