Inflationary Pressures Surrounding COVID – Are Price Increases Consistent With Changes in Costs

Abstract

Evidence suggests that companies are more eager to raise prices than to cut them (Karaian et al., 2023). Profit margins remain high even as inflation drops. This is accomplished by raising or holding prices steady as inflation shrinks. We examine the changes in selling prices and underlying costs between pre and post COVID periods. We expect that the shift in the relation between selling price and underlying costs prior to COVID would be less than the shift post-COVID. We investigate grocery food items because food inflation has been a main driver of inflation in the United States and other countries (Cavallo, 2022). Focusing on this specific cost behavior between the pre- and post-COVID periods allows us to measure the relationship between raising selling prices and related underlying increases in cost of goods sold and selling, as well as general and administrative expenses. The inference from our analyses suggests that food companies may have taken advantage of COVID-driven inflation to justify and increase their profit margins.