Inflation's Winners Need to Help Out the Losers

It’s tough being caught in the middle, especially when it comes to inflation.

The pandemic caused a significant shift in demand toward goods and away from services and shattered the stable supply-demand balance that had spawned two decades of inflation averaging just above 2%. This abrupt change in demand patterns sparked pricing shocks that basically divided companies into winners, survivors and losers on inflation.

The last group will be playing catch-up on price increases, which is why inflation will most likely prove to be more stubborn than many people expect. To help cool inflation faster and return to an economy anchored by balanced supply and demand, some businesses will need to pull back on the price increases they have already passed through to customers.

When the supply-demand imbalance struck, some companies were well-positioned to take advantage with outsized price increases, which widened profit margins. Maritime shipping was the best example. Cosco Shipping Holdings Co. and AP Moller-Maersk A/S raked in the profits during the pandemic because volume surged and capacity was constrained, leaving price as the only mechanism to deal with the crush of goods the US was importing. Consumer packaged-goods companies, vehicle makers and logistics providers also experienced more demand than they could handle and leaned on price to swell their profit margins. (A measure of aggregate profit margins improved in the second quarter to 15.5%, the most since 1950.)