Strategist Warns of Potential ‘Deeper’ Recession due to ‘Greedflation’

**The Debate Over Greedflation and Its Impact on Inflation**

In the field of economics, a heated debate is taking place regarding the root causes of inflation. While some economists believe there is a strong argument to be made for the concept of “greedflation,” others dismiss it as a mere semantic discussion. Greedflation suggests that corporations took advantage of rising consumer prices during the pandemic and the Ukraine war to increase their profit margins, thereby exacerbating inflation. However, mainstream economists argue that what is being described as greedflation is simply the standard cyclical component of profits that occurs during business cycles.

**Albert Edwards’ Theory of Greedflation**

One economist, Albert Edwards of Société Générale, stands firm in his belief that greedflation has been a significant driver of the recent surge in consumer prices. Edwards argues that there is no historical precedent, including the inflationary period of the 1970s, in which unit costs and unit profits rose sharply at the same time. To support his theory, Edwards cites evidence from sources such as the Kansas City Federal Reserve, which found that corporate profit increases accounted for over half of the inflation in 2021. The Economic Policy Institute also reached a similar conclusion in a 2022 article. Edwards warns that greedflation has set the U.S. up for a deeper and longer recession than even the most pessimistic investors anticipate.

**The Impact of Greedflation on Interest Rates and Recession Predictions**

For over a year, Wall Street economists have been warning that rising interest rates will eventually lead to an economic standstill and trigger a recession. However, these predictions have yet to materialize. The unemployment rate remains low, inflation has decreased from its 2022 high, and GDP growth was solid in the first quarter. Edwards argues that many of these recession predictions were premature because they failed to recognize the economic impact of higher corporate profits. He suggests that greedflation has delayed the onset of a recession by keeping corporate profits elevated for a longer period.

**The Potential End of Greedflation as a Recession Signal**

While Albert Edwards acknowledges that greedflation and rising corporate profit margins have delayed an economic downturn by keeping earnings high, he warns that a profits downcycle could still lead to a recession. In recent months, corporate profits have started to decline after reaching record levels in 2021 and 2022. This decrease is seen as a natural result of a maturing business cycle by some economists. However, Edwards believes that corporate profits lead the economic cycle. As profits decline due to rising costs and reduced demand, companies may cut investment and jobs to maintain profitability. This, in turn, can lead to economic recessions.

**Conclusion**

While there is ongoing debate about the impact of greedflation and its role in inflation, it is clear that the recent decline in corporate profits is cause for concern. Whether greedflation is seen as a significant driver of consumer prices or simply a cyclical component of profits, the decrease in profits is not a positive sign for the economy. The potential end of greedflation and a profits downcycle could signal an impending recession. Economists will continue to analyze and assess the dynamic relationship between corporate profits, inflation, and the overall health of the economy.