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 to 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. - (2025). [10.4324/9781003600732-4]

Sellers' Inflation and Distributive Conflict: Lessons from the Post-COVID Recovery

Ettore Gallo;
2025-01-01

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 to 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.
2025
9781003600732
Sellers' Inflation and Distributive Conflict: Lessons from the Post-COVID Recovery / Gallo, Ettore; Rochon, Louis-Philippe. - (2025). [10.4324/9781003600732-4]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11381/3015393
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