Corporate profits account for almost half the increase in Europe’s inflation
I think this talk about costs vs profits sounds important to lay people, but is completely irrelevant. Companies do not price goods based on the goodness of their hearts. They price it at the point that maximizes volume*(unit price-COGS). Companies are constantly testing this price point. For example, a promotion may produce data that can indicate how consumers will respond to a price change.In an inflationary period, consumers expectations change allowing more movement in this price than normal. And this permits companies to increase prices, and produce higher profits. Note, their upstream providers are doing the same, and some of these higher profits will be passed on upstream.Companies that are in a weaker market position, will find themselves unable to raise prices as much as their competitors.. and if their upstream providers find demand enables them to raise prices more than they can, they will find their profits decrease. Some of these companies will go out of business. This is one of the ways that inflation rids the market of less desirable companies.Cost-plus pricing (how many consumers imagine pricing works) has almost entirely gone away in retail pricing. Even if a producer does this, the retailers will market adjust the price themselves... This is what has happened to car sales: the manufacturer didnt capture the difference, so the dealership captured it instead.