Profit inflation is real

Discussions on "profit inflation" are mired in conceptual unclarities, definitional idiosyncrasies and data problems. This article attempts to bring conceptual clarity to the debate on profit inflation, defining profit inflation strictly as an increase in the gross output price that is caused by an increase in the profit mark-up (keeping all other unit cost items constant). Empirical evidence for the U.S. economy (2020-2022) shows that corporate profit mark-ups have indeed increased, raising both the aggregate profit share and the general price level. Hence, unlike in the 1970s, the recent inflationary episode is the outcome not of a wage-price spiral but of a profit mark-up-price spiral in which real wages get squeezed. However, the conflict underlying the recent surge in inflation concerns not just corporate shareholders profiteering at the cost of workers, but - importantly - also involves struggles between financial speculators (in oil and commodity markets) and the real economy.