Would you invest in something that returns 1% when there are 2% returns elsewhere? That is called the "opportunity cost", and a business is misallocating capital if the expected return is less than the opportunity cost.

> The cause in the increase is possibly an increase in poverty, or increase in wealth disparity?

I don't understand your question. Businesses have to have a return on their investment, or they go out of business. Shrinkage is a cost, so the price on the goods has to be raised to compensate.

    Profit = Revenue - Cost

The price will be increased until people stop buying (either because they do without, go elsewhere, or shoplift)

The cost of shrinkage doesn’t factor into the price a business can charge. You don’t decide “I will buy X for $1 and sell it for $3”, you go “I can sell X for $3, where’s the cheapest I can buy it and does it make sense”

Now if you have a competitor next door selling X for $2.50 you will struggle to sell for $3, even if your rent or your supplier is higher

If you can't raise prices, you go out of business.

> if you have a competitor next door selling X for $2.50 you will struggle to sell for $3

Right, but your competitor next door is also suffering from shrinkage.

There's no way that shrinkage does not impact prices. Having the government run it won't help, either, as even if the government doesn't raise prices, the money will come out of your pocket anyway as taxes or inflation.