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Firms’ margins behaviour in response to energy shocks: Evidence from the UK

Author

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  • Manuel, Ed
  • Piton, Sophie
  • Yotzov, Ivan

Abstract

How have profits behaved in the current period of sustained inflation? In part, the answer depends on how ‘profits’ are defined. Some broad measures suggest increasing profits, but conflate market and non-market sector dynamics and omit important corporate costs. This paper constructs an alternative measure of corporate profits to capture UK firm earnings in excess of all production costs. This measure has been declining since the start of 2022, consistent with evidence from historical energy shocks. This decline has not been uniform across firms, however: firms with higher market power have been better able to protect their margins; others have experienced large declines.

Suggested Citation

  • Manuel, Ed & Piton, Sophie & Yotzov, Ivan, 2024. "Firms’ margins behaviour in response to energy shocks: Evidence from the UK," Economics Letters, Elsevier, vol. 235(C).
    • Handle: RePEc:eee:ecolet:v:235:y:2024:i:c:s0165176523005323
    DOI: 10.1016/j.econlet.2023.111506
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    Cited by:

    1. Leonardo Ciambezi & Mattia Guerini & Mauro Napoletano & Andrea Roventini, 2023. "Accounting for the Multiple Sources of Inflation: an Agent-Based Model Investigation," GREDEG Working Papers 2023-14, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France, revised Jun 2024.

    More about this item

    Keywords

    Energy shock; Inflation; Mark-ups; Profit margins;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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