Companies raising prices one of the biggest drivers of surging inflation, a new study shows [View all]
A new study from the Federal Reserve Bank of Kansas City found that one reason for 2021's persistent inflation may be more simple: Companies were just marking up their prices in anticipation of things getting more expensive — and it could be a good signifier of when inflation is about to soar in future economic booms.
Authors Andrew Glover, José Mustre-del-Río, and Alice von Ende-Becker looked at what might have signaled looming inflation, and why prices went up as much as they did. They find that "markup growth likely contributed more than 50 percent to inflation in 2021, a substantially higher contribution than during the preceding decade."
Even across industries that had "very different relative demand and inflation rates" throughout 2021, markup growth remained pretty much the same. While markups are "determined by a host of unobservable factors, including changes in demand but also changes in firms' expectations of future marginal costs" as the authors noted, their uniformity pointed to companies all preparing themselves for higher prices.
Throughout 2021, companies saw their profits soar, pocketing their highest margins since December 1950. As Insider's Dominick Reuter and Andy Kiersz reported, when corporate profit margins peaked in the 1990s, they were still just about half of 2021's margins.
https://www.businessinsider.com/companies-marking-up-prices-major-contributor-to-inflation-2023-1
Record profits, record inflation.
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