The rise in profit margins may explain the stability of inflation

Economic research literature 1 has shown that companies with high profit margins absorb increases in production costs in their margins and do not transform them into price increases. Profit margins in OECD countries have increased for more than 20 years due to the weakening of employees' bargaining position and corporate concentration. This development may explain why inflation has become stable and why changes in unit production costs have hardly been passed through to prices since 2010. 1 Companies with high profit margins hardly pass cost increases through to their prices; see for example: Mr Melitz (2018), “Competitive effects of trade: theory and measurement”, Review of World Economics, vol. 154, no. 1; D. Baqaee, E. Farhi, K. Sangani (2021), “The Supply-Side Effects of Monetary Policy”, NBER Working Paper 28345, January 2021.