We've had "greedflation" which was never fully accepted by economists and now "excuseflation":
You recently identified a phenomenon that you call “excuseflation.” Tell me what it means.
I think a lot of people at this point have heard about this idea that companies, you know, maybe they’re taking advantage of the current environment in order to raise prices and really gouging their customers.
The thing about excuseflation is it’s sort of grounded in truth. It’s the idea that companies are using these once-in-a-lifetime disruptions. Think about the supply chain hiccups that we’ve had. Think about the Ukraine-Russia war. And they’re using those one-off disruptions as an excuse to raise prices. And that sounds fair enough. You know, companies, they have expenses. If their input costs go up, maybe it makes sense for them to pass some of those on to customers. But where it starts to become insidious is when they’re raising prices so much that they’re seeing their profits go up quite substantially as well.
Can you give me an example of something that has been excuseflated?
Sure. So one of my favorite examples, because, you know, I love these personally, but chicken wings. Let’s talk about chicken wings and Wingstop. Wingstop is a very large purveyor of very delicious chicken wings. And what they’ve been saying on their earnings calls is that they have been raising their prices for their delicious chicken wings. And the reason they’ve been doing that is because the wholesale cost of your basic chicken wing went up quite a lot during the pandemic. We had a lot of disruptions at various farms, chicken farms with labor shortages and things like that. So it made sense that chicken wing prices went up and the company started passing those on to consumers.
The issue now, though, is that we have seen a substantial drop in chicken wing prices. And yet the company isn’t saying that it’s going to start dropping its prices. What it’s discovered, much like a lot of other businesses at the moment, is that actually this strategy of making up what you lose in sales volume with higher prices, so you’re selling fewer products, but you’re selling them at higher prices, [is] a viable strategy in the current environment, and it’s working for a lot of companies because profit margins are up.
We spoke to the owner of a bakery over in Chicago. And, you know, I think there’s a tendency when you think about things like greedflation or excuseflation, you think about these big corporations, these really sophisticated corporations that are, you know, formulating their pricing strategies and how to get the most out of customers. But this is a phenomenon that also is endemic in smaller and midsize businesses. And this baker in Chicago kind of laid it out for us. He said:
Whether it’s rye flour or bird flu, that impacts eggs when it makes national news just running a business, it’s an opportunity to increase the prices without getting a whole bunch of complaining from the customers. It’s not that we’re out there price gouging, but, you know, timing can be everything. —Ken Jarosch, owner of Jarosch bakery, as heard on Odd Lots
Shouldn’t competition push prices down? If I’m a business owner, I’m going to let consumers know that I can get them stuff much cheaper than the other guys who have excuseflated everything. Shouldn’t that be happening?
This is really the key thing about excuseflation and where it differs a little bit from greedflation. If a company starts raising its prices just because it can, then in theory, according to the basic rules of capitalism and economics, someone should come in and undercut them and steal all their business away. But the thing about excuseflation is it allows companies to raise prices all at the same time and all together.
The article then goes on to logically follow the thread that this is causing a cartel-like economic situation: https://www.vox.com/podcasts/23682466/inflation-prices-us-economy