Inflation rates also remain uncomfortably high in the U.S. and many other parts of the world despite a wave of interest-rate rises that have gone further and been delivered more quickly than at any time since the 1980s.

There have been good reasons for businesses to raise their prices in recent months. The supply-chain disruptions caused by the Covid-19 pandemic and the energy, food and raw material bottlenecks that followed Russia’s invasion of Ukraine have pushed costs higher.

But there are signs that businesses are doing more than covering their costs.

According to economists at the ECB, businesses have been padding their profits. That, they said, was a bigger factor in fueling inflation during the second half of last year than rising wages were.

Jan Philipp Jenisch, chief executive officer of construction materials maker Holcim, said on a recent earnings call: “We are in that inflationary environment already for almost two years now…We have done the pricing in a very proactive way, so that our results aren’t suffering. On the contrary, they are improving the margins.”



One puzzle is why consumers have played ball. Usually, economists would expect any business that raised its prices to lose customers to competitors that don’t, or not by as much.

But these aren’t normal times. In rare situations—such as an economy’s reopening after a pandemic—widespread knowledge that costs are rising allows businesses to raise their prices knowing that their competitors will act in the same way, according to a paper by Isabella Weber, assistant professor of economics at the University of Massachusetts, Amherst, and her colleague, Evan Wasner.

That is a pattern the two economists said has played out in an analysis of recent earning calls in which executives at U.S. businesses present their financial results to analysts.

“We do have to think about pricing differently,” said Ms. Weber. “A cost shock, or bottlenecks can create an implicit agreement among firms that raise their prices, so they can expect others to act likewise.”


[ . . . ]


Elsewhere, the desire to boost margins, rather than just cover increased costs, appears to be one reason why food prices have continued to rise rapidly in Europe. 

Much of the surge in food prices since the middle of last year is due to higher costs, particularly for energy, since most food production is quite energy intensive. But economists at insurance giant Allianz have calculated that about 10% of the rise reflects the search for higher profits. They suggest that is possible because key parts of the food-supply chain are dominated by a small number of firms.

Dumb question, here, maybe, but how would the gold standard work with an exponentially increasing population?

Assuming a finite amount of gold in the treasury (or in the world for that matter), wouldn't that depress prices and wages?

Or would the value of the dollar in gold be ratcheted back, in order to put more money into circulation?

The latter seems to have the same pitfalls as fiat money.

Well, if there were an infinite supply of gold, it wouldn't have very much value.  It's precisely because it's a precious metal available in limited quantities that it would serve as a backstop to inflation.