Price Gouging Versus Inflation: Understanding the Differences
The world gets more expensive every day. Still, somehow, corporations experience record profits while consumers struggle to buy groceries or fill up their gas tanks. How is this possible?
It is easy enough for consumers to understand inflation. But if the cost of goods goes up, so does the manufacturing price, right? How can a company report higher earnings if they also experience the effects of inflation unless they unfairly increase the cost of goods and services?
Price Gouging: Definition and Impact
Price gouging is the unfair raising of prices for goods and services. While businesses have a right to sell proprietary items at prices they determine fair, price gouging often occurs after a natural disaster or another crisis when demand is high, and supply is low.
For example, in December 2019, when hand sanitizer was in high demand and low supply, Amazon sellers and other marketplaces sold 2-liter bottles of Purell for as much as $250 — a blatant violation of consumer pricing ethics.
Despite the adverse effects of price gouging on consumers' pocketbooks, it is not the driving factor for inflation. While it contributes to the erosion of purchasing power, price gouging is only a symptom of a more significant issue, primarily demand.
Increased government spending and changes in monetary policy fueled a consumer-centric economy, resulting in high demand levels. Unfortunately, supply couldn't keep pace, causing prices to increase and resulting in unprecedented inflation rates. Some sellers took advantage of these changes, raising prices to unfair levels.
Inflation: Definition and Impact
Ultimately, inflation is a decline in consumer purchasing power. Unlike price gouging, inflation is the incremental and somewhat even rise in prices across various sectors, goods and services. Depending on your viewpoint and experience, inflation can be positive and negative.
For example, if you own a home or rental property, inflation can increase the equity in the asset. Also, the rental value may increase because the home value increases.
While some investments and assets will benefit from inflation, your spending power will not. A dollar will not buy the same goods as it did before increased rates.
The Federal Reserve is the U.S.'s primary financial regulator and does what it can to ensure inflation remains manageable. The Fed continuously assesses and changes monetary policy to maintain a stable financial environment. Unfortunately, some economic changes and conditions are unforeseen, leading to significant rate hikes and price shifts.
Price Gouging Versus Inflation
While sometimes unpredictable, inflation is often a manageable and expected shift in consumer purchasing power. Through regulatory and financial policy changes, the country can mitigate the worst symptoms of inflation fallout.
Price gouging is purely invented. A company or individual acts unethically and against the common good for profit. It is an abuse of power and resources, and regulators try to limit its occurrence.
While it is challenging for many people to understand the current rise in prices, especially when bombarded with news of record corporate profits, price gouging is not the cause of inflation, nor is it a guaranteed symptom. Price gouging results from loose morals and criminal judgment, nothing more, nothing less.