Bank of Canada Research Challenges Greedflation Narrative Finds Limited Impact on Inflation from Company Pricing Practices
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New research conducted by the Bank of Canada challenges the notion that companies engaged in "greedflation" by exploiting inflation to excessively raise prices for goods and services. The study, published on August 1, analyzed changes in cost markups by companies and concluded that the growth in markups contributed minimally to inflation, accounting for less than one-tenth of inflation in 2021 and none in 2022. The authors of the paper emphasized that increases in markups did not align with the high inflation experienced during these years, suggesting limited impact on inflation from changes in company pricing practices.
While some companies, notably large grocery chains in Canada, have faced criticism for profit growth coinciding with inflation, the data contradicts the narrative that businesses leveraged inflation to maximize prices. Although the June consumer price index (CPI) indicated a 9.1% rise in the cost of food purchased at stores compared to the previous year, overall inflation decelerated to 2.9% in June, down from a peak of 8.1% in June 2022, according to Statistics Canada. This suggests progress in the Bank of Canada's efforts to curb rising prices.
Bank of Canada Governor Tiff Macklem had previously suggested that company pricing practices played a role in the inflation issue, aligning with public sentiment. However, the recent research challenges this assertion by indicating that companies did not take full advantage of inflation to drive excessive price increases, providing a different perspective on the inflationary dynamics.
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