Is greedflation our new inflation?

Dr Keen Mhlanga

The greedflation hypothesis is partly a reaction to another common cause of inflation, an increase in civil worker wages in Zimbabwe. Salaries have not driven up prices, but rather followed them.

The concept of leveraging inflation to generate excessive gains has become known as greedflation, and it is often divisive. In the correct setting, a minor change in the number of commodities reaching the market can result in a large shift in prices.

Inflation occurs when the purchasing power of your currency dwindles as prices rise. It’s an economic phenomenon with a bad representative among policymakers, investors and consumers. Price pressures have become an imminent threat to both household income and the economy as a whole.

Zimbabwe liberalised its foreign-exchange market and hiked interest rates as part of a new slew of measures aimed at stabilising the country’s currency and containing surging inflation, but prices are not following the curve they instead remained relatively high.

It can be found in a variety of products and services. It has been unusually high for the last few months. The imbalance between supply and demand is a critical concern right now.

There is supply and demand for every item and every service that is provided and sold. When supply is low, prices rise; when demand is high, prices rise. And in some of these circumstances, you have a little bit of both.

There is little doubt that many businesses have marked up items in excess of their own escalating costs.

Profit margins increased and stayed high across the economy during the pandemic. When all prices rise, customers lose sight of what is reasonable to pay.

Inflation is not increasing as quickly as it did in June. Nonetheless, prices for products Zimbabweans desire and need are still higher now than they would have been if the post-inflationary period had not occurred.

Meanwhile, despite the overall downturn, prices for specific things, such as basic commodities, manufactured and imported goods, continue to rise.

After a month of increasing prices, experts are still unable to pinpoint the source of the country’s greatest inflation issue in months.

Here’s what could transpire if prices rise. Individuals want to pay for their vacations, their cars, and their appliances. They could wish to get some food, and when they go, they notice that they have to spend more money to acquire what they’re used to.

So, what should you do if this happens to you? Many return to their employers and say; “Well, all of this is costing me more. As a result, I require a raise.”

When this occurs throughout the economy, salaries may rise. Wages are raised, forcing employers, who are also producers and service providers, to raise prices even more in order to finance the higher wages.

This raises prices and creates a vicious spiral. So, this is the true problem of inflation: at some point, people begin to expect inflation, and when they do, they behave in ways that cause inflation to endure.

That is what we need to be concerned about and keep an eye out for.

While economists commonly blame pandemic-era supply chain delays, the war in Ukraine and different economic policies, some blame greedflation, the theory that firms utilise higher inflation rates as an excuse to raise prices and expand their margins.

Customer demand outranked all other considerations by businesses when establishing prices, including consistent profit margins and overall inflation. Inflation is rampant, and the culprit is being sought.

Profiteering firms are the most recent trend in Europe.

The notion that selfish corporations were to blame has taken a hit in America, where corporate profits are declining even as consumer prices continue to climb at an unsustainable rate. But it hasn’t stopped the idea from spreading across the Atlantic.

According to the IMF, rising earnings “account for almost half of the increase” in eurozone inflation. In the United Kingdom, the government has directed authorities to investigate for proof of price gouging; on July 3, the competition watchdog added fuel to the fire by discovering that supermarkets boosted their margins on gasoline between 2019 and 2022.

A research titled: “Elections and Inflation: In Search of a Business Cycle” by Paul Wallner, found no evidence of a link between elections and rising inflation. Instead, the data revealed some evidence of a drop in inflation throughout the election season.

These findings were not statistically significant, but the tendency toward decreased inflation is intriguing since it calls into question political opportunism as well as the prevalence and impact of government initiatives.

According to basic economic theory, charging what the market can handle would motivate enterprises to create more, so restricting prices and guaranteeing that more people have access to the scarce item.

If you manufacture a product and people want to buy it, you can charge $5 per unit even though it only costs $3 to make. That might allow you to invest in more machinery so you can produce more, possibly so many that you can drop the price to $4 and still sell enough to increase your net income.

We ought to keep in mind that a company that conducts business in more than one currency may experience financial benefits or losses as a result of currency exchange rate fluctuations.

Gains and losses are frequently incurred as a result of transactions undertaken in a currency other than the primary company’s functional currency, as well as revaluation of general ledger account balances denominated in a currency other than the company’s functional currency.

It can be argued that price markups, or the extent to which corporations can charge a price that is higher than their costs, determine corporate profits. Firms are not permitted to charge arbitrary prices. Optimal pricing are determined by a variety of market elements such as demand, supply, costs and expectations.

As a result, price rises and price decreases can both result in lost earnings for a company. Price increases are merely evidence of enterprises reacting to economic conditions and re-optimising prices.

There are bound to be instances of firms profiting, but not as part of some great scheme to satisfy their corporate avarice and generate record profits.

Unfortunately, it appears that global difficulties are driving inflation, and as in many previous scenarios, impoverished people bear the brunt of the harm when their belts are forced to tighten. The word Greedflation is presumably fuelled by a working class troubled by low salaries, price hikes, inflation, and an overall degradation in their standard of living.

Dr Keen Mhlanga is an Investment Advisor with high skills in Finance. He is the Executive Chairman of FinKing Financial Advisory. Send your feedback to [email protected], contact him on 0777597526.