Republicans spent the better part of four years mocking the political left’s greedflation narrative—and rightly so. But lately they’re using similar arguments to deflect blame for high gas prices pushing up measured inflation.
The war in Iran has predictably spiked oil prices. The price of the US crude oil benchmark rose over 40 percent in March, and gasoline prices now average above $4 per gallon. As a result, the energy consumer price index was up 10.9 percent in the second-largest single-month increase in the series’ 60-year history. Buoyed by those rising energy prices, overall CPI was also up—0.9 percent in the same month.
Overwhelmingly, that’s the result of markets pricing in the likelihood of protracted war in Iran and supply chain disruption in the Strait of Hormuz. Already, the war has caused $50 billion worth of oil lost—nearly a month of total US oil demand.
For economists, the price change is an unremarkable consequence. This is what happens when the supply of a good falls, especially one for which the short-term demand is relatively inelastic given oil’s downstream importance. Indeed, with oil being a critical input to so many other industries, sharply rising oil prices are one of the few supply shocks with the power to make the overall price level spike—producing a so-called transitory inflation.
During Joe Biden’s presidency, the war in Ukraine disrupted global energy and food supply chains in a similar way. But this occurred at the same time the Federal Reserve had just allowed a huge monetary expansion, and Congress was borrowing like crazy. The result was soaring economy-wide spending, as people shed money balances and bought assets, goods, and services. This effect was ultimately hugely more consequential in driving the uplift in the price level we saw over time.
Democratic politicians, as members of the incumbent party, faced massive pressure to do something about the cost of living, and predictably they reached for an explanation that didn’t implicate their own support for “running the economy hot” through monetary and fiscal stimulus. Some, including Biden, blamed Putin’s war in Ukraine. But many, like Sen. Elizabeth Warren (D‑MA) and later the president again, also advocated the greedflation or “profit-led” theory of inflation.
Senator Warren argued that price increases were primarily driven not by excess consumer spending (from the inflated supply of money) or supply disruptions, but by corporations tacitly squeezing excess profits from consumers given the shrouding effect of the supply-shock cost rises. The best evidence supporters of that theory could muster was unconvincing: Nonsense reports conflated the producer price index with input costs, politicians made slipshod comparisons between corporate profits and the inflation rate, and researchers listened in on earnings calls for evidence that firms were using inflation as pretext.
Warren herself seems sincere in believing that this short-term exploitation can arise from periods of cost shocks; she also condemned companies she said were price gouging following Trump’s summer 2025 tariff chaos and last month pressed the Federal Trade Commission to investigate companies raising prices after war in Iran broke out—especially in gasoline, fertilizer, and airlines. But her misguided arguments are now finding convenient use by Republicans too.
In a House Appropriations Committee hearing last week, USDA Secretary Brooke Rollins blamed rising fertilizer prices on “a handful of companies that have basically taken over the market.”
A day before that, Treasury Secretary Scott Bessent warned retail gas stations to lower prices soon. As crude oil prices fall, Bessent said he’d be looking “to keep the retail gas stations honest,” adding, “I’m sure the president will call out anyone who’s a bad actor.” That comes at the same time CNN reported Republicans were actively searching for a midterm strategy post–Iran war: “The White House has also sought new ideas for taking on rising prices, such as accusing gas station operators of seizing on the war to gouge consumers at the pump.” Of course, we saw similar browbeating against companies after the Liberation Day tariffs.
But corporate greed or price gouging has never been a plausible theory of price changes, let alone inflation. Corporations with substantive market power don’t need pretext. They can always extract high prices by artificially limiting supply. And firms without market power that try to pocket a windfall invite undercutting by rivals; that’s especially true of hypercompetitive retail gas stations. When prices rise simultaneously across an entire industry—nay, across the entire world—the far simpler explanation is either a demand shock or a common cost shock—precisely the sort a war-driven supply shock produces. Consumers have to be willing and able to pay the higher prices, after all.
A lot of politicians around the world seem to get upset if prices for retail gas spike on inventory that was acquired at lower cost. They regard that as unfair “gouging.” Few of them, I suspect, insist on selling their homes for the price they paid for them. But fundamentally, this misunderstands the role of market prices, which reflect the relevant scarcity of the products in each new context. The opportunity cost for firms of selling oil below what the market will bear today is the price that could be obtained elsewhere in the world. Firms also need to replace inventory at the new market price. So, yes, they might make a short-term accounting profit on some inventory, but this is quite transitory.
More important, prices must rise to allocate scarce goods toward those with the highest willingness to pay and to prevent shortages. The profit received is an incentive to ramp up production and end a shortage. Companies who don’t raise prices don’t miraculously have more gasoline to give—we’re still $50 billion worth of oil short. And because charging below market prices would be crystallized into a shortage, consumers aren’t left better off in aggregate. The times when a consumer benefits by finding gas at below-market prices are inevitably offset by the times they find no gas at all—either because earlier customers tapped the supply or because the time cost of waiting in line for gas isn’t worth it.
The increasing frequency with which politicians reach for the greedflation myth is troubling. It reveals that lawmakers aren’t interested in reckoning with the consequences of their policies. When voters swallow the greedflation myth, they give cover to the bad policies that actually caused price hikes and absolve the lawmakers who pushed for them. With Warren and the Democrats, it was strong support for overly stimulatory monetary and fiscal policy. With the Trump administration, it’s explaining away the impact of tariffs and a conflict they started.
Voters and consumers shouldn’t let this happen. Supply shocks raise prices, and wars are supply shocks. Loose monetary policy devalues the dollar. At a minimum, governments that go to war or government institutions that enable excess monetary creation bear responsibility for the inflationary consequences, not the people and companies that have to respond to those consequences.
