Theory of Captured Inflation

Abstract

Traditional inflation theories explain how prices rise but provide limited explanation for why prices often remain elevated after the original cost pressures subside. This paper introduces the Theory of Captured Inflation as an application of the Odero Axiom (C(I)·E > D) within the broader framework of Persistence Science. The theory proposes that inflation persistence emerges when downward price transmission efficiency collapses, allowing market concentration, import dependence, and regulatory failure to convert temporary shocks into permanent price structures. The paper formalizes four structural postulates governing captured inflation, introduces the Odero Capture Gap, the Market Capture Coefficient (λ), and the Odero Captured Inflation Equation, and develops the Odero Captured Inflation Curve as a diagnostic tool for measuring persistent price distortions. Analysis of six African economies between 2020 and 2025 yields an average Rigidity Coefficient (RC) of 3.0, indicating that price reductions transmit only about one-third as effectively as price increases. The theory argues that inflation persistence should be understood as a systemic control problem rather than solely a monetary phenomenon. A statutory 4-Pillar De-Capture Act is proposed to restore downward transmission efficiency, reduce structural decay pressures, and improve purchasing-power persistence. What is New: Version 2.0 substantially expands the original Odero Theory of Captured Structural Inflation (OTCSI v1.0). Key enhancements include: • Reframing captured inflation within the Persistence Science framework. • Formal derivation from the Odero Axiom (C(I)·E > D). • Introduction of the Odero Capture Gap. • Introduction of the Market Capture Coefficient (λ). • Development of the Odero Captured Inflation Equation. • Introduction of Control Leverage (ϕ) and Risk Lever (ρ). • Expanded empirical framework covering six African economies. • Addition of falsifiability criteria and testable predictions. • Integration with established inflation and industrial organization literature. • Expanded policy framework through the 4-Pillar De-Capture Act. The theory proposes that inflation persistence can emerge from systemic control collapse and market capture rather than monetary factors alone.