More on missing downward price pressure (hint, blame corporate profits) by Josh Bivens

But, I’d also note something else holding up prices—the determination of the corporate sector to earn historically high profit margins. The Bureau of Economic Analysis (BEA) has a great table on prices and unit labor and profit costs for the non-financial corporate sector, which accounts for just about half of the U.S. economy. In the NFC sector, prices per unit of output since the end of the recession are up just 4.1 percent. But labor costs per unit of output are down by 1.1 percent. Given that labor costs are more than 60 percent of overall prices in the NFC sector and that they’re falling, this must mean some other cost component in the production process with a much smaller share is rising a lot to drive prices up.

Meet corporate profits per unit—up 63 percent (60 percent after-tax) since the recession’s end. In fact, the growth in after-tax corporate profits can explain all of the 4.1 percent price increase between the end of the recession in the middle of 2009 and the end of 2012 (see the figure below for a breakdown).

There are many good reasons to think that upward pressure on prices is a useful thing in the U.S. economy right now, but I’m not sure that rising profits is one of them.

(via Thoma)