Isabella Weber on the Big Rethink of Inflation

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:15)

Joe, do you remember the episode we did, I think it was just a couple months ago, with the Corbu strategist, Samuel Rines, about companies are telling us the real reason they're raising prices.

Joe Weisenthal (0:27)

Yeah, there was a great episode that sort of helped me analyze corporate earnings calls from then on, and really think about, particularly in the consumer space, where he had this thesis that companies are very explicitly willing to sacrifice volume expansion in favor of higher prices and higher margins.

Tracy Alloway (0:44)

Right, he called it price over volume.

And since that episode, so we actually wrote an article based on that episode, and we had a lot of quotes from Sam. We also cited a research paper from an Odd Lots favorite, Isabella Weber, and we talked about this phenomenon. We called it excuseflation, so this idea that companies are using all these one-off emergencies as an excuse to raise prices, but since then, this whole idea has exploded into the public consciousness in various ways under different umbrella terms. So Isabella used the term seller's inflation. I've seen profit-led inflation, greedflation, although I think that's a bad term for it personally, but it's everywhere now.

Joe Weisenthal (1:31)

Right, and it's funny because it's one of these things where economists are sort of like scandalized by sort of alternative ideas about inflation, and it's like they have certain things, like some people say money supply, they say like labor costs and wages, but it feels like on Wall Street, there's kind of less mystery. It's like, no, they're like, at least, according to people who read the calls, it's like, no, they're telling us they're willing to push price. And I guess the question is like, well, there's lots of follow-on questions, but I think there's some really interesting policy ramifications from some of this identification.

Tracy Alloway (2:04)

Totally. And it is funny, Pepsi isn't talking about like, oh, the money supply is increasing, therefore, we're raising our prices. They're talking very explicitly about, well, we have these one-off reasons maybe to raise our prices, and so we're gonna see how far we can take it to the consumer. So anyway, everyone is talking about this, whether you call it greedflation, excuseflation, profit-led inflation, seller's inflation. We need to go back to one of our favorite guests who's done a lot of academic work on this topic. We specifically cited her work in the piece that we did. We're gonna be speaking with Isabella Weber.

Joe Weisenthal (2:37)

I'm psyched on set.

Tracy Alloway (2:38)

All right, Isabella Weber, economics professor at University of Massachusetts Amherst, thank you so much for coming back on.

Isabella Weber (2:45)

Thanks so much for having me back, and it's a true pleasure to be here in person.

Joe Weisenthal (2:48)

Yeah, this is a treat. I didn't realize up until like five minutes ago that you were gonna be on set. I thought we were gonna look at the business, so great to finally meet you.

Tracy Alloway (2:55)

The first time we're actually meeting in person. Have you been surprised at all by how quickly this seems to have become? I hesitate to call it mainstream because people are still debating it, but it's in the Wall Street Journal, it's in the New York Times, certainly in Bloomberg coverage.

Isabella Weber (3:10)

Yeah, I think it has been very surprising, especially since some of the key data on the profit margins actually already came out in the fourth quarter of 2021 So, and you guys have actually been covering that at the time you were covering the profit margin explosion that happened at the same time as inflation started to take off. And in this, by now probably infamous guardian piece that I wrote, I actually started by saying there is so far pretty much undiscussed phenomenon, which is an explosion of profit margins that coincides with inflation and we should take a closer look at that. So I think in many ways, when our paper came out at the beginning of this year, it has kind of been something that had been going on for a long time and companies have been saying this on earnings calls for a long time.

The groundwork folks have been calling this out for a long time, but now it really took off.

Joe Weisenthal (4:03)

So, I guess one of my questions and I have many is there are different factors that people talk about driving inflation and obviously the tight labor market, fast wage growth, high levels of consumer demand, a lot of the supply chain bottlenecks that we've talked about over the years on the show, the supply side factors.