Are Firm Markups Boosting Inflation? A Post-Keynesian Institutionalist Approach to Markup Inflation in Select Industrialized Countries

Starting in 2021, the current inflation process has spurred plenty of discussion in academic and policy circles. This paper studies the relationship between firms’ markups and inflation during the 2021–22 inflation surge in several industrialized countries. It begins by explaining markup inflation and its critics in the context of the current debate over the sources of inflation. Then it reviews the characteristics of markup inflation within the post-Keynesian theory of markup pricing and complementing it with the Institutionalist approach to inflation that distinguishes between basic inflationary pressures and propagation mechanisms. The second part assesses markup inflation for several industrialized countries using descriptive statistics and conventional econometrics. The main contribution falls in empirically estimating markups considering the contribution of material cost and controlling for changes in capacity utilization over time. It concludes that there is some evidence pointing at markup inflation and, importantly, the existence of markup inflation leads to rejecting any wage-price spiral.