Corporate profits have contributed disproportionately to inflation.
Economic Policy Institute offers an explanation that our current inflation is different from previous recessions in the US in addition to what NDd and Barkley Rosser offer :
Since the trough of the COVID-19 recession in the second quarter of 2020, overall prices in the NFC sector have risen at an annualized rate of 6.1%—a pronounced acceleration over the 1.8% price growth that characterized the pre-pandemic business cycle of 2007–2019. Strikingly, over half of this increase (53.9%) can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase. This is not normal. From 1979 to 2019, profits only contributed about 11% to price growth and labor costs over 60%, as shown in Figure A below. Nonlabor inputs—a decent indicator for supply-chain snarls—are also driving up prices more than usual in the current economic recovery.
Normal and recent contributions to growth in unit prices in the nonfinancial corporate sector
| 2020 Q2–2021 Q4 | 1979–2019 average | |
|---|---|---|
| Corporate profits | 53.9% | 11.4% |
| Nonlabor input costs | 38.3% | 26.8% |
| Unit labor costs | 7.9% | 61.8% |
Source: Author’s analysis of data from Table 1.15 from the National Income and Product Accounts (NIPA) of the Bureau of Economic Analysis (BEA).
5% per year per year eventually eats itself.
If we go with what NDd says: The better measures is real aggregate payrolls for nonsupervisory workers, i.e., the total of payrolls for the entire country, normalized for inflation. These are up 2.7% YoY, a slight increase from last month March.
If inflation keeps rising, Labor will quit spending amd then a recession.
“In other words, unless wage increases actually accelerate from here (unlikely), we really need inflation to stay down for the rest of this year. Otherwise, consumer spending (70% of the economy) is going to flag and likely contribute to an economic downturn. Not to mention being a bad thing for working families.” NDd
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NPR had a report this morning suggesting that excess inventory accounts for part of the costs. Would the EPI analysis catch that? I don’t know the data set to know whether the conclusions contradict each other or not.