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Sellers' Inflation and Distributive Conflict: Lessons from the Post-COVID Recovery

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  • Ettore Gallo
  • Louis-Philippe Rochon
Abstract
The paper offers a post-Keynesian explanation of the soaring inflation experienced during the post-COVID recovery, coherent both at the microeconomic and macroeconomic levels. The microeconomic argument is rooted on the premise that price-making firms consider both their costs and their desired share of profits when setting prices. To defend profit margins in the aftermath of the pandemic, the initial cost-push shock was passed to consumers through higher prices; in a second phase, some firms, particularly in more highly concentrated and systemically significant sectors, benefited from the post-pandemic permissive pricing environment to increase their price mark-ups, leading to temporary profit-fueled inflation following the cost-push shock. This microeconomic explanation is compatible with the macroeconomic notion of a stable inflation barrier. For a given quantity of real output, it is shown that if profit earners defend their share of income following a cost-push, this will produce a one-time price increase, with inflation becoming more persistent if the target adapts endogenously — i.e., if the aggregate mark-up changes. The paper contrasts the notion of a wage-price spiral with that of a profit-price sink, arguing that sellers' inflation is a real — albeit temporary phenomenon.

Suggested Citation

  • Ettore Gallo & Louis-Philippe Rochon, 2024. "Sellers' Inflation and Distributive Conflict: Lessons from the Post-COVID Recovery," Review of Political Economy, Taylor & Francis Journals, vol. 36(4), pages 1331-1350, October.
    • Handle: RePEc:taf:revpoe:v:36:y:2024:i:4:p:1331-1350
    DOI: 10.1080/09538259.2024.2358130
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