Why Is Inflation So Sticky? It Could Be Corporate Profits

[ck4829]

Inflation has proved more stubborn than central banks bargained for when prices started surging two years ago. Now some economists think they know why: Businesses are using a rare opportunity to boost their profit margins.

Figures released Tuesday by the European Union’s statistics agency showed consumer prices in the eurozone were 7.0% higher than a year earlier in April, a pickup from March and more than three times the European Central Bank’s target. However, the core rate of inflation—which excludes food and energy prices—edged down to 5.6% in April from a record high of 5.7% in March.

https://www.wsj.com/articles/why-is-inflation-so-sticky-it-could-be-corporate-profits-b78d90b7

[rampartc]

1. supply and demand

if it is prifutable to sell gasoline foe $3, why sell it for $2?

[TheFarseer]

5. Not if it's profitable

If you CAN sell it for $3. My big issue is there are too many monopolies and oligopolies that collude with each other. There is no real competition. People either have to buy the product or service at whatever price the monopoly commands or do without. This just annoying when we are talking about concert tickets or soda but when it’s internet access or a car or food, this “inflation” is going to have a very negative impact on a great many American people.

[rampartc]

6. wr have tools to breal up trusts and force competition

that have not been used since at&t demonstrated how to game the anti trust laws.

[underpants]

2. We didn't really expect them to let us keep all that 2020 money of theirs on our pockets

now did we?

More than 1/2 of food cost increases are just profit.

[Timewas]

3. Inflation??

Greed-flation, pure and simple.

[usonian]

4. How Much Have Record Corporate Profits Contributed to Recent Inflation?

https://democraticunderground.com/100217884522
KC fed.
https://www.kansascityfed.org/research/economic-review/how-much-have-record-corporate-profits-contributed-to-recent-inflation/

Firms raised markups during 2021 in anticipation of future cost pressures, contributing substantially to inflation.

Translation: companies get to hedge higher costs by jacking up prices, and you don't. And oh, they blame the administration and the fed, while piling on top of inflation, in stealth mode (tailgating, so to speak)

January 12, 2023 Economic Review Inflation Macroeconomics Inflation Research
by: Andrew Glover, José Mustre-del-Río and Alice von Ende-Becker

Download article. (PDF)

Inflation reached a 40-year high in 2021 and continued to climb in 2022. Record corporate profits received significant public attention as a potential explanation for high inflation. Although corporate profits and inflation do not have a direct accounting relationship, inflation is directly affected by growth in the markup, or the ratio between the price a firm charges and the firm’s current marginal cost of production. Thus, the sum of the growth in the marginal cost of production and the growth in the markup is the inflation in a firm’s price. Markups can change over time for many reasons, including firms’ expectations for their marginal costs in the future.

Andrew Glover, José Mustre-del-Río, and Alice von Ende-Becker present evidence that markup growth was a major contributor to inflation in 2021. Specifically, markups grew by 3.4 percent over the year, whereas inflation, as measured by the price index for Personal Consumption Expenditures, was 5.8 percent, suggesting that markups could account for more than half of 2021 inflation. However, the timing and cross-industry patterns of markup growth are more consistent with firms raising prices in anticipation of future cost increases, rather than an increase in monopoly power or higher demand.