Report
In the short to medium term, inflation results from a conflict over income distribution
In theory, in the long term, inflation is a monetary phenomenon. In the short to medium term, inflation is tied to companies’ determination to restore their profit margins after a shock. Such a shock could be: An increase in demand (which at equilibrium normally reduces labour productivity); An increase in wages; An increase in commodity prices. We examine past periods in the United States and the euro zone when one of these shocks has led companies to seek to raise their profit margins. The effect on inflation is greater the higher the degree of wage indexation to prices . We show that in the recent period, profit margins have been very high in the United States and not abnormally low in the euro zone, which rules out the scenario of resurgent inflation, especially as wages are not closely indexed to prices in either country (region), capacity utilisation is depressed and wage growth has slowed.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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