Corporate pricing power and inflation

Ábel István and Hegedűs Szilárd and Nagy Gyula and Tóth Orsolya Éva (2023) Corporate pricing power and inflation. In: Foresight in Research. Budapesti Gazdasági Egyetem, Budapest, pp. 181-190. ISBN 9786156342560

[thumbnail of BGEkn2023_kötet_konferencia_2023_final edited-181-190.pdf]

Preview

Text
BGEkn2023_kötet_konferencia_2023_final edited-181-190.pdf - Published Version
Download (1MB) | Preview

Abstract

Recent surge in inflation created new challenges for economic theory and policy. The reference to earlier episodes is often misleading. Traditional theories focus on demand factors like excessive money supply overheating the economy (monetary theory), wage growth and labor shortages and point to central bank responsibility. Central banks are increasing interest rates in line with their mandate in the inflation targeting framework. Current explanations point to supply disruptions and bottlenecks in basic commodities and energy markets and the geopolitical turmoil. Increasing interest rates and the austerity policy would do little to tame supply related inflation and they would risk even worsening the problem. We propose new aspects of the problem which indicate a need for new approaches in research. Inflationary tendencies are often linked to cost pressures. We point to a new aspect namely the increasing profit margins of companies. Firms with market power increase prices when they expect that their competitors will follow. Current conditions of sector-wide cost shocks support such expectations that instead of increasing market share competitors will follow the price increase. Not just the competitors but every downstream sector may also increase their prices. We extend the analysis to this aspect by using Orbis database for the Hungarian companies’ balance sheet data for the period of the period 2013-2021.