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Profits and Inflation in the Time of COVID

Author

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  • Andreas Hornstein

Abstract

Following the onset of the COVID pandemic in 2020, inflation accelerated in 2021-22 and peaked at roughly 7 percent in mid-2022. This was an inflation rate not seen since the early 1980s. Among the many accounts of this increase that have been introduced, one attributes the increase to firms being greedy and exploiting supply chain disruptions to raise their prices excessively. In this article, I first argue that a frequent piece of evidence in support of "greedflation" — the increased share of gross operating surplus in the nonfinancial corporate business (NFCB) sector — is not that informative about profits. I then construct an alternative measure of profits — the price-cost markup — using standard measures and show that its contribution to inflation in the NFCB sector was rather small.

Suggested Citation

  • Andreas Hornstein, 2023. "Profits and Inflation in the Time of COVID," Richmond Fed Economic Brief, Federal Reserve Bank of Richmond, vol. 23(37), November.
    • Handle: RePEc:fip:fedreb:97342
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    File URL: https://www.richmondfed.org/publications/research/economic_brief/2023/eb_23-38
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