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Corporate profits have contributed disproportionately to inflation.

Summary:
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

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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 Q41979–2019 average
Corporate profits53.9%11.4%
Nonlabor input costs38.3%26.8%
Unit labor costs7.9%61.8%

ChartData

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).

Dan Crawford
aka Rdan owns, designs, moderates, and manages Angry Bear since 2007. Dan is the fourth ‘owner’.

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