I’ve been on (and on, and on) about so-called “Greedflation.”

Whenever something goes wrong in the world, we naturally look for someone to blame. Currently, a lot’s wrong, and in some cases placing blame is pretty straightforward.

Notwithstanding Chinese defense minister Li Shangfu’s contention that Vladimir Putin has made “important contributions to promoting world peace,” I think it’s fair to suggest the Kremlin bears quite a bit of responsibility for the war in Ukraine, and thereby for heightened geopolitical tensions and sporadic bouts of volatility in commodities.

But “blame Putin” isn’t always an especially satisfying answer to the many questions you might have as you go about your daily life. Just yesterday, for example, I saw a television commercial for a super-sized Ram. I’ve never been in the market for a super-duty truck, but $83,500 seemed like a lot of money for a Ram. If it is, I don’t think that’s Putin’s fault, although when you have to empty your checking account to fill up your tank during months when gas prices are high, I suppose you could plausibly make the case that the Kremlin isn’t helping.

A popular non-Putin scapegoat for the high cost of goods and services in the post-pandemic world are corporations who, we’re told, continue to extract “excess” profits from inflation-weary consumers. I’m skeptical about that, not in the sense that I doubt the veracity of the claim, but rather in the sense that determining what counts as an “excess” profit is difficult. Profits are, by their very nature, “excesses.” They represent the excess above the cost of production. When do these excesses become excessive? I don’t know. And neither does anyone else.

Fortunately, that’s not a judgement we usually have to make. For all “his” failings, “Mr. Market” does a fairly good job of limiting “excess” profits. If I make candy bars, I may be able to “profiteer” during periods of macro volatility by charging a little more than I need to make up for higher input costs without any chocolate lovers becoming the wiser, but if I try to charge $46, I won’t sell any chocolate. I have to determine how far I can push the proverbial envelope, and the limiting factor on that is consumer demand which, for purely discretionary goods, is generally a function of excess income.

Things are, of course, not that black and white, but across-the-board profiteering where that’s supposed to mean substantially all companies charging prices most people can’t afford for “normal” goods and services simply isn’t possible for very long unless the same companies raise wages fast enough that their employees can keep up. But that’s an exercise in question-begging: If you’re raising wages as fast as you’re raising prices, your profit margins are the same unless you’re cutting costs elsewhere or your workers are getting more productive.

And on and on. This is all coming from a Progressive-leaning voice (me), by the way. I’m not “pro-business,” strictly speaking. But I do know about businesses, and one thing you’ll discover if you ever run one is that you can’t just charge anything you want. There’s a market clearing price for most goods and services. If you raise your prices too high, the market won’t clear, and you’ll be left with a pile of unsold inventory.

That’s critical context for decelerating inflation in the US, and understanding it as such is the key to grasping the underlying tenets of the bear case for equities. “While some took falling CPI and PPI as a sign that the Fed may be closer to pivoting to a more accommodative policy stance, we think it’s worth pointing out that falling inflation implies that pricing power is beginning to erode for corporates,” Morgan Stanley’s Mike Wilson remarked.

The figures above are simple, but instructive. The chart on the left shows YoY producer price growth with the share of small businesses planning to raise prices to consumers. The relationship is very strong. The chart on the right shows the same series (zoomed) with YoY revenue growth for America’s largest companies.

“Top-line growth is likely to slow further as pricing power fades,” Wilson went on to say, before making a key point that ties into the discussion found above. “This is likely to be true for an index like the S&P 500, in particular, which is over-indexed to discretionary goods from a revenue and market cap standpoint,” Wilson emphasized, calling that “the area of inflation that’s slowing at a particularly notable pace.”

Bottom line (figuratively and literally), to the extent there’s “Greedflation” in the economy, my guess would be it’ll fade going forward. Cost-cutting initiatives won’t be able to keep up with waning pricing power, and labor costs will prove sticky. Remember: One of the reasons giving employees big raises is such a difficult decision for corporate management teams is that you can’t readily rescind them just because inflation recedes.

None of that’s to say corporations won’t continue to make plenty of “excess” money, or even that margins won’t summit new peaks after what’s expected to be a shallow decline this year. It’s just to say that the accumulation of corporate excess in all its various manifestations will likely revert to a more normal trajectory in the years ahead. So, a slower, but still inexorable, concentration of power and profits in the hands of capital at the expense of every other stakeholder, just at a pace that’s not so torrent as to prompt government intervention by the handful of lawmakers who aren’t beholden to corporate interests.