Being ideologically aligned with business interests, and desperate to justify its most recent price increases, The Economist argues in its latest issue that the current level of inflation is caused by excessive government overspending, not greedflation. As evidence of this, it points to falling profits in America and European energy subsidies. Is the argument valid?
No. American profits are still very high, historically speaking; the stock market reflects this. The European energy subsidies just had the effect of offsetting what would have been the equivalent of a large tax increase. They did not provide the opportunity for a wave of increased consumer spending on other goods and services.
The reality is that the two principal drivers of today’s inflation are a tight labor market and greedflation. The latter is only possible because wealthy people in America and Europe have plenty of savings, partly due to the enforced inactivity during the pandemic, and the willingness to use them. That condition will continue indefinitely unless there is some sort of massive external shock that destroys asset values and consumer confidence. What would that be? Other than a massive surprise increase in interest rates, it would be something that is unforeseeable and beyond our control.