The paper offers a post-Keynesian explanation of the soaring inflation experienced during the post-COVID recovery, coherent both at the microeconomic and macroeconomic levels. The microeconomic argument is rooted on the premise that price-making firms consider both their costs and their desired share of profits when setting prices. To defend profit margins in the aftermath of the pandemic, the initial cost-push shock was passed unto consumers through higher prices; in a second phase, some firms, particularly in more highly concentrated and systemically significant sectors, benefited from the post-pandemic permissive pricing environment to increase their price mark-ups, leading to temporary profit-fueled inflation following the cost-push shock. This microeconomic explanation is compatible with the macroeconomic notion of a stable inflation barrier. For a given quantity of real output, it is shown that if profit earners defend their share of income following a cost push, this will produce a one-time price increase, with inflation becoming more persistent if the target adapts endogenously - i.e. if the aggregate mark-up changes. The paper contrasts the notion of a wage-price spiral with that of a profit-price sink, arguing that sellers' inflation is a real - albeit temporary phenomenon.
Sellers’ Inflation and Distributive Conflict: Lessons from the Post-COVID Recovery / Gallo, Ettore; Rochon, Louis-Philippe. - In: REVIEW OF POLITICAL ECONOMY. - ISSN 1465-3982. - (2024). [10.1080/09538259.2024.2358130]
Sellers’ Inflation and Distributive Conflict: Lessons from the Post-COVID Recovery
Ettore Gallo
;
2024-01-01
Abstract
The paper offers a post-Keynesian explanation of the soaring inflation experienced during the post-COVID recovery, coherent both at the microeconomic and macroeconomic levels. The microeconomic argument is rooted on the premise that price-making firms consider both their costs and their desired share of profits when setting prices. To defend profit margins in the aftermath of the pandemic, the initial cost-push shock was passed unto consumers through higher prices; in a second phase, some firms, particularly in more highly concentrated and systemically significant sectors, benefited from the post-pandemic permissive pricing environment to increase their price mark-ups, leading to temporary profit-fueled inflation following the cost-push shock. This microeconomic explanation is compatible with the macroeconomic notion of a stable inflation barrier. For a given quantity of real output, it is shown that if profit earners defend their share of income following a cost push, this will produce a one-time price increase, with inflation becoming more persistent if the target adapts endogenously - i.e. if the aggregate mark-up changes. The paper contrasts the notion of a wage-price spiral with that of a profit-price sink, arguing that sellers' inflation is a real - albeit temporary phenomenon.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.