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Questioning profit inflation as an explanation of the post-pandemic inflation

Author

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  • Marc Lavoie

    (N/A)

Abstract

The COVID-19 pandemic eventually gave rise to large increases in profits, profit shares and inflation rates. A major controversy has developed among economists and in the media about whether this was largely caused by profit inflation, that is, by increases in the percentage mark-ups set by firms. The paper attempts to clear some confusions regarding the issue of profit inflation, dealing with its definitions and the complexities of its measures. In particular, it shows that increases in economic activity and increases in the relative cost of domestic or imported inputs will lead to an increase in realized profit margins even if percentage mark-ups remain constant. The paper also lists a series of factors that may mitigate the results of empirical studies that show an increase in the aggregate value of this percentage mark-up.

Suggested Citation

  • Marc Lavoie, 2024. "Questioning profit inflation as an explanation of the post-pandemic inflation," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 21(2), pages 232-247, April.
    • Handle: RePEc:elg:ejeepi:v:21:y:2024:i:2:p232-247
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    File URL: https://www.elgaronline.com/view/journals/ejeep/21/2/article-p232.xml
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    Citations

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    Cited by:

    1. Beatriz Estulano Vieira & Jorge Thompson Araujo, 2024. "The Mythical versus the Real-World Golden Age of Capitalism: A Robinsonian Perspective," Working Papers 2415, New School for Social Research, Department of Economics.

    More about this item

    Keywords

    Profit inflation; Imported inflation; Percentage mark-up; Functional income distribution;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • 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

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