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Profit inflation is real

Author

Listed:
  • Servaas Storm

    (Delft University of Technology)

Abstract

Discussions on "profit inflation" are mired in conceptual unclarities, definitional idiosyncrasies and data problems. This article attempts to bring conceptual clarity to the debate on profit inflation, defining profit inflation strictly as an increase in the gross output price that is caused by an increase in the profit mark-up (keeping all other unit cost items constant). Empirical evidence for the U.S. economy (2020-2022) shows that corporate profit mark-ups have indeed increased, raising both the aggregate profit share and the general price level. Hence, unlike in the 1970s, the recent inflationary episode is the outcome not of a wage-price spiral but of a profit mark-up-price spiral in which real wages get squeezed. However, the conflict underlying the recent surge in inflation concerns not just corporate shareholders profiteering at the cost of workers, but – importantly – also involves struggles between financial speculators (in oil and commodity markets) and the real economy.

Suggested Citation

  • Servaas Storm, 2023. "Profit inflation is real," PSL Quarterly Review, Economia civile, vol. 76(306), pages 243-259.
    • Handle: RePEc:psl:pslqrr:2023:34
    as

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    File URL: https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/18217/17106
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    References listed on IDEAS

    as
    1. Carlotta Breman & Servaas Storm, 2023. "Betting on black gold: Oil speculation and U.S. inflation (2020-2022)," Working Papers Series inetwp208, Institute for New Economic Thinking.
    2. Carlotta Breman & Servaas Storm, 2023. "Betting on Black Gold: Oil Speculation and U.S. Inflation (2020–2022)," International Journal of Political Economy, Taylor & Francis Journals, vol. 52(2), pages 153-180, April.
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    Cited by:

    1. Giacomo Cucignatto & Nadia Garbellini & Facund Fora Alcalde, 2023. "Profit-led or cost-led inflation? Propagation effects through the EU inter-industry network," PSL Quarterly Review, Economia civile, vol. 76(306), pages 261-276.

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    More about this item

    Keywords

    inflation; profit inflation; stagflation; mark-up pricing; profit share; energy and oil prices; speculation;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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