Report

Inflation, profits and market power

This report from UK think tank IPPR proposes major policy shifts and argues in favour of a new direction for competition policy.

In the aftermath of the pandemic, as the global economy rebounded it was accompanied by a dramatic rise in inflation, reaching levels not seen since the 1970s, peaking at 9 and 11 per cent in Europe and 11 per cent in the US.

Post pandemic supply bottlenecks were exacerbated by an energy shock following Russia’s invasion of Ukraine. While these were clearly the initial trigger of high inflation, a recent debate highlights an often-overlooked amplifying factor: corporate profits.

In this joint paper by IPPR and Common Wealth, we summarise some key aspects of the literature around this, present novel firm-level analysis across countries, and highlight gaps in the research and policy debate. We propose major policy shifts and argue in favour of a new direction for competition policy.