Opinion
Corporate Greed Isn't to Blame For High Inflation.
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By Kim Schoenholtz and Stephen Cecchetti
In June, US inflation hit a 40-year high of 9% and hasn't slowed much since. Some people argue that corporate greed is a key driving force behind rising prices. Inflation is high, they say, because firms have greater power to raise prices and increase profits than they did in previous decades.
We disagree.
Instead, over the past few quarters, the rise increasingly reflects the tight labor market and the increase in labor costs, including wages and benefits.
Businesses set the prices of their products so that they can earn a profit beyond the costs of their labor and materials. Their profit margins and markups typically rise and fall with demand. If sales permit, a rise in costs or profit objectives will lead firms to raise the prices of their products. When this occurs persistently across the economy, not just in an isolated firm or sector, the result is inflation.
Read the full CNN Business article.
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Kim Schoenholtz is Henry Kaufman Professor of the History of Financial Institutions and Markets and Director of the Center for Global Economy and Business
We disagree.
Instead, over the past few quarters, the rise increasingly reflects the tight labor market and the increase in labor costs, including wages and benefits.
Businesses set the prices of their products so that they can earn a profit beyond the costs of their labor and materials. Their profit margins and markups typically rise and fall with demand. If sales permit, a rise in costs or profit objectives will lead firms to raise the prices of their products. When this occurs persistently across the economy, not just in an isolated firm or sector, the result is inflation.
Read the full CNN Business article.
____
Kim Schoenholtz is Henry Kaufman Professor of the History of Financial Institutions and Markets and Director of the Center for Global Economy and Business