{"text":[[{"start":4.6,"text":"We heard a lot about “greedflation” in the post-pandemic years, when prices were increasing at a rate of 8 or 9 per cent a year. We hear a lot less about the subject now, when inflation rates are almost normal. In fact, a Google Trends search for “greedflation” shows a remarkably similar bump to the inflation rate itself. The newfound indifference to greedflation is understandable, but it is also a mistake. The moment when inflation is subdued is exactly when we should keep our wallets secure and our eyes on the sticker price."}],[{"start":37.550000000000004,"text":"It’s always tempting to blame rising prices on corporate greed. Inflation is painful, and somewhat mysterious, and it’s nice to have someone to blame. Companies do try to maximise profits, which is as close to greed as an emotionless institution is likely to get, and it’s hard to deny that big retailers and the firms that supply them do decide what number to put on the price tag."}],[{"start":62.45,"text":"But as an explanation of inflation, that won’t quite do. Any theory of corporate greed, no matter how intuitive or satisfying, has to explain why the opportunity to be greedy seems to wax and wane. Companies are sniffing out profit opportunities on a 24/7 basis, but are we supposed to believe that inflation surged in 2023 because CEOs were suddenly struck by the unprecedented idea of jacking up their prices? We can dismiss that notion."}],[{"start":87,"text":"So is there a coherent case that inflation spikes are somehow exacerbated by corporate profiteering? One possibility is simply that corporations use more general inflation as camouflage, raising prices more than they need to because consumers are already expecting trouble, or are confused about what prices should be. "}],[{"start":105.55,"text":"Paul Scanlon of Trinity College, Dublin, has proposed this in his article “A model of greedflation”. One of the costs of inflation has always been that it disorients everyone, making it harder to figure out whether a change in a price, or a wage, is a shift in relative prices or part of some general inflationary surge. It is not absurd to suggest that companies might take advantage of the chaos."}],[{"start":131.6,"text":"Another possibility, described by Isabella Weber and Evan Wasner of the University of Massachusetts Amherst, is that supply shocks in one part of the economy might act as a signal for rival firms to raise prices in unison without the need to risk prison by explicitly colluding. To conjure a purely hypothetical example, if the Strait of Hormuz were closed to oil tankers, the price and profitability of oil from other sources would rise. Since the price of oil is connected to many other prices, perhaps that would give other companies the signal they needed to raise not only their prices but their profit margins."}],[{"start":168.75,"text":"But the opposite seems equally plausible: that customers are militant when prices are rising sharply and complacent when prices are subdued. This alternative view suggests that when input costs increase, companies will do everything they can to minimise the impact. It is when input costs are falling that companies fail to pass on the savings to consumers, taking advantage of the fact that customers are relaxed. Of course, when inflation is low, and some prices may even be falling, few people worry about greedflation. That is precisely the point."}],[{"start":200.5,"text":"So, what does the evidence suggest? Johannes Brinkmann and Nikhil Datta of the University of Warwick recently published an analysis of the impact on petrol and diesel prices of the oil price shock in 2022, following Russia’s onslaught in Ukraine. They found that in the UK, retailer margins compressed: the wholesale price of diesel rose by 39 pence per litre, while retail prices only rose 16 pence. This is the opposite behaviour to that predicted by the greedflation hypothesis."}],[{"start":230.7,"text":"A natural explanation of this price compression is that retailers feel under more intense scrutiny when prices are rising. Brinkmann and Datta show that searches on the petrolprices.com website increased dramatically when prices did — and that areas where such searches were more common were also areas where the price compression was more intense."}],[{"start":251.2,"text":"Brinkmann and Datta’s analysis is merely the latest in a long tradition of research describing “rocket and feather” pricing at the pump — capturing the idea that pump prices neither faithfully track the ups and downs of the crude oil market, nor exaggerate them — instead, they shoot up like a rocket but drift down again like a feather. What is more, the quick surge upward reaches prices less lofty than one would expect; it is during the slow descent that retailers make their money. "}],[{"start":278.95,"text":"Fifteen years ago, Matthew S Lewis and Howard Marvel noted that customers spent more effort searching when prices were rising, even though there was little benefit to that search, since most retailers were charging similar prices. When pump prices were falling, there was more variability from forecourt to forecourt and a higher return to shopping around, but most customers did not bother, feeling content that prices were moving in the right direction. (The search heuristic is simple enough to imagine: if you drive past the forecourt and prices have gone up, keep driving and hope to find a better deal; if they’ve gone down, stop worrying and fill the tank.)"}],[{"start":316.95,"text":"Crude oil and fuel markets are transparent and easy to study. What about the broader landscape of prices? Back in 2000, the never-dull Sam Peltzman of the University of Chicago published a survey with the self-explanatory title “Prices Rise Faster Than They Fall”. Peltzman studied hundreds of products, limiting himself to those with a significant identifiable input. For example, the price of peanuts goes some way to explaining the input costs of peanut butter manufacturers. Peltzman found that “in more than two of every three markets examined” prices responded to cost increases more quickly than to cost reductions, the rocket-and-feather behaviour again."}],[{"start":358.9,"text":"Don’t expect the greedflation question to be easily resolved. Thankfully, it doesn’t have to be: whether you think that companies exploit market power under the cover of widespread inflation, or you suspect that companies exploit market power when inflation is low and customers have stopped paying attention, it’s never a bad time for the competition policy authorities to look for ways to sharpen competition by breaking up dominant firms or improving price transparency."}],[{"start":385.79999999999995,"text":"With wholesale prices rising sharply in the US (to 6 per cent in April), perhaps we shall see the greedflation debate return to prominence. Fine. But it’s when nobody is talking about greedflation that consumers should be most on their guard."}],[{"start":399.94999999999993,"text":"Find out about our latest stories first — follow FT Weekend Magazine on X and FT Weekend on Instagram"}],[{"start":411.54999999999995,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1779788921_6212.mp3"}