2021–2023 inflation surge

Based on Wikipedia: 2021–2023 inflation surge

Here's a question that sparked bitter arguments at dinner tables, in Congress, and among economists: When prices shot up after the pandemic, were companies taking advantage of us?

The word "greedflation" became so popular it nearly became Collins Dictionary's word of the year in 2023. But whether you think it's a real phenomenon or economic nonsense depends largely on who you ask—and perhaps, on your politics.

The Great Price Explosion

Starting in mid-2021, something happened that most people under forty had never experienced: serious inflation. Prices didn't just creep up—they surged. The United States saw its highest inflation since 1981. The eurozone hit its highest since they started keeping records in 1997.

Fuel prices alone jumped 49% in just six months, from January to June 2022.

The causes seemed obvious at first. The COVID-19 pandemic had thrown a wrench into everything. Factories shut down. Ships sat waiting at ports. Workers stayed home. Then governments pumped trillions of dollars into economies to keep them from collapsing—the United States alone spent $5 trillion in aid.

When people finally emerged from lockdowns with money in their pockets and a burning desire to buy things, they found empty shelves and backlogs. Classic economics: too much money chasing too few goods.

Then Russia invaded Ukraine in early 2022, and oil, gas, fertilizer, and food prices spiked even higher.

The Transitory Debate

Federal Reserve Chairman Jerome Powell thought the inflation would be "transitory"—a fancy word for temporary. Treasury Secretary Janet Yellen called the risk "small" and "manageable."

They were wrong.

By the time inflation peaked in late 2022, it had become clear this wasn't just a supply chain hiccup. James Surowiecki, writing in The Atlantic, criticized the Treasury Department for underestimating the threat. The International Monetary Fund eventually concluded that "food and energy are the main drivers of this inflation," squeezing living standards worldwide.

The Federal Reserve responded the way central banks typically do: by raising interest rates aggressively. Higher interest rates make borrowing more expensive, which cools down spending, which theoretically brings prices back under control. It's a blunt instrument—like fighting a fever by dunking the patient in ice water—but it usually works eventually.

Where Did All That Inflation Come From?

Economists love a good argument, and this inflation gave them plenty to argue about.

The supply chain story is straightforward. During lockdowns, people stopped buying restaurant meals and concert tickets and started buying exercise bikes and home office furniture. Spending on goods surged while spending on services collapsed. The factories and shipping networks that make goods couldn't keep up, especially when workers in countries like Vietnam couldn't get vaccinated fast enough to return to work.

By November 2021, durable goods like furniture and appliances were 14.9% more expensive than a year earlier. Services had only risen 3.8%.

Then there's the money supply argument. Milton Friedman, the Nobel Prize-winning economist who championed free markets, famously said in 1963 that "inflation is always and everywhere a monetary phenomenon." In plain English: print too much money, and prices go up.

During the pandemic, the M2 money supply—essentially all the cash and easily accessible money in the economy—grew faster than it had in decades. For believers in Friedman's theory, this explained everything.

But Jerome Powell disagreed. He argued that the link between money supply and inflation "ended about 40 years ago" due to changes in how the financial system works. His predecessors Ben Bernanke and Alan Greenspan had said the same thing. They pointed to 2010-2015, when the money supply grew 45%—far faster than the economy—yet inflation actually declined.

The Housing Elephant in the Room

Here's something that often gets overlooked in inflation debates: housing costs were doing a lot of heavy lifting.

The U.S. Census Bureau calculated that if you stripped out housing costs, inflation at the end of 2023 would have been 1.8% instead of 3.2%. In other words, nearly half the remaining inflation was just shelter costs.

Why? America simply hasn't built enough homes. The housing shortage grew 52% between 2018 and 2020 alone, according to Freddie Mac. This artificial scarcity—often blamed on NIMBY-ism, where existing homeowners block new construction in their neighborhoods—means too many people competing for too few places to live.

Climate change has made things worse. A 2024 European Central Bank study found that weather disruptions and climate impacts were adding more than 0.1% per month to food inflation. Insurance premiums have also climbed in areas hit by increasingly frequent wildfires and floods.

Enter Greedflation

Now we arrive at the controversial part.

Some economists, politicians, and observers noticed something curious: corporate profits weren't just holding steady during the inflation surge. They were hitting record highs.

A New York Times analysis found that profit margins across more than 2,000 publicly traded companies were well above pre-pandemic averages. University of Massachusetts Amherst economists found that U.S. company profit margins reached their highest level since World War II.

The Federal Reserve Bank of Kansas City released a study in January 2023 concluding that "markup growth likely contributed more than 50 percent to inflation in 2021." Markups are the difference between what something costs to make and what a company charges for it.

An International Monetary Fund study found that rising corporate profits accounted for almost half of the euro area's inflation increase over two years.

European Central Bank economists concluded that businesses were using the inflation surge "as a rare opportunity to boost their profit margins," finding it was a bigger factor than rising wages in fueling inflation during late 2022.

The Greedflation Argument

Here's the case for greedflation, as articulated by economists like Isabella Weber, Paul Donovan, and Z. John Zhang:

During normal times, if a company raises prices significantly, customers notice and might switch to competitors. But during an inflationary period, everyone expects prices to rise. Consumers know things are getting more expensive, but they lose their sense of what a "reasonable" price should be.

This creates what Zhang, a marketing professor at the University of Pennsylvania's Wharton School, called "a great opportunity for every firm to realign their prices as much as they can. You're not going to have an opportunity again like this for a long time."

The theory suggests that companies with significant market power—meaning they face little competition—can raise prices more than their costs justify, pocketing the difference as extra profit. The general inflationary chaos provides cover.

Robert Reich, who served as Labor Secretary under President Bill Clinton, put it this way: "Nobody believes that price gouging is the main cause of inflation. The question really is whether corporate pricing power is aggravating the situation. And there's a great deal of evidence it is."

The Case Against Greedflation

Critics—and there are many—call the entire concept nonsense.

The Economist magazine published a scathing critique in July 2023, arguing that rising prices were "not due to greedy companies" but were "a natural result of supply and demand issues caused by the cash infusion to the economy which took place during the COVID-19 pandemic."

The counterargument goes like this: Companies are always trying to maximize profits. That's not greed; that's literally what they're supposed to do. If corporations could simply raise prices whenever they wanted, why didn't they do it before the pandemic?

Justin Wolfers, an economist at the University of Michigan, quoted Jason Furman, who chaired the Council of Economic Advisers under President Obama: "Blaming inflation on corporate greed is like blaming a plane crash on gravity. It is technically correct, but it entirely misses the point."

The metaphor is clever. Gravity is always there. Companies always want to charge more. Neither gravity nor corporate profit-seeking explains why crashes or inflation happen at specific moments. You need to look at what changed.

The Market Concentration Wrinkle

But here's where it gets more nuanced: market concentration has increased dramatically over recent decades.

Many industries that were once competitive are now dominated by a handful of giant companies. When there are fewer competitors, switching to a cheaper alternative becomes harder. This gives large corporations something approaching monopolistic pricing power.

Supporters of the greedflation theory argue that this concentration is what enabled companies to hike prices beyond what their costs justified. The pandemic and its chaos created the opportunity; the lack of competition made it possible to actually seize that opportunity.

A May 2023 New York Times investigation found that despite the costs of doing business falling in recent months—oil prices down, transportation costs down, raw material prices stabilizing—many large corporations continued raising prices anyway, contributing to persistent inflation.

The Sticky Price Problem

Even economists who dismiss greedflation acknowledge a frustrating reality: prices tend to go up faster than they come down.

When input costs rise, companies pass those increases to consumers quickly. When input costs fall, companies are slower to lower prices—or they simply don't. This asymmetry means that even if inflation's causes are purely supply-and-demand, the benefits of falling costs don't reach consumers equally.

This is why some economists warn that despite the worldwide decline in inflation rates, consumer prices are unlikely to return to pre-pandemic levels. For that to happen, we'd need actual deflation—prices falling rather than just rising more slowly—and deflation typically only happens during recessions.

Where Are We Now?

By 2024, the United States had achieved what economists call a "soft landing"—inflation came down without triggering a recession. As of mid-2025, U.S. inflation sits around 2.7%, close to the Federal Reserve's 2% target.

But the scars remain. Prices are higher than they were in 2019, and they're not going back down. What cost $100 before the pandemic costs more now, and probably always will. Wages have generally risen too, but not evenly—some workers caught up, others fell behind.

Six out of ten European businesses remained concerned about energy prices even in 2023. Manufacturing companies were hit hardest, with many reporting energy cost increases of 25% or more.

The Bigger Picture

The greedflation debate reveals something important about how we think about the economy.

Traditional economics treats markets as mostly efficient and companies as price-takers rather than price-makers. In this view, prices reflect underlying realities of supply and demand, and any company charging too much will simply lose customers to competitors.

The greedflation argument challenges this by asking: What happens when there aren't enough competitors? What happens when a few giant corporations dominate an industry? What happens when consumers are confused and disoriented by rapid price changes?

The debate also reflects a deeper political divide. Those on the left tend to see corporate power as a problem requiring government intervention—antitrust enforcement, price controls, windfall taxes. Those on the right tend to see inflation as a monetary phenomenon caused by too much government spending and money printing.

In reality, the 2021-2023 inflation surge probably resulted from all of the above: supply chain disruptions, fiscal and monetary stimulus, the Ukraine war, housing shortages, climate impacts, and yes, some companies taking advantage of the chaos to pad their margins.

Economics, it turns out, is rarely simple enough for a single explanation—even when that explanation has a catchy name.

What History Teaches

Inflation surges are not new. The United States experienced severe inflation in the 1970s, driven partly by oil shocks after the OPEC embargo. That episode took years to resolve and required Federal Reserve Chairman Paul Volcker to raise interest rates so high that he triggered a painful recession.

The 2021-2023 surge resolved faster and less painfully than many feared. But it left lasting impacts: a generation that had never worried about inflation now understands viscerally what it means. Political debates about economic policy shifted. Trust in expert predictions—remember "transitory"?—took a hit.

And somewhere in corporate boardrooms, executives learned a lesson too. Whether you call it greedflation or rational profit-maximization or simply taking advantage of extraordinary circumstances, many companies discovered that the public's tolerance for price increases was higher than they'd assumed—at least during a crisis.

Whether they'll remember that lesson during the next economic disruption remains to be seen.