To the ears of many, “pricing power” is something of a dirty term. For left-wingers it conjures up images of greedy corporations abusing their market dominance to charge more. For economists it raises the spectre of sticky inflation as companies ratchet up prices to cover higher costs. But from another perspective, pricing power is less of a problem: it enables firms to withstand the kind of inflationary pressures that they are now experiencing. In so doing, it serves as a shock absorber for the economy, forestalling the risk of a recession.
The past few weeks have put pricing power in the spotlight in America. According to data published on August 25th, post-tax corporate profits reached 12.1% of gdp in the second quarter, their highest since at least the 1940s (see chart). When companies announced their second-quarter results, dozens noted their capacity to raise prices in the face of higher wages and dearer inputs. Chipotle, a fast-food chain, emphasised that it had sold more…
This article was written by and originally published on www.economist.com