Data from Orbis highlights rising risk of inflation

A study using company data from Orbis suggests that rising mark-ups in services sectors across the US and the OECD could mean we will face higher inflation in the medium term.

The research, published by the Centre for Economic Policy Research (CEPR) on 11 May, used data from Orbis to uncover “a significant positive correlation” between producer price inflation and mark-ups within industries since the early 2000s, leading it to conclude that if market power continues to rise, it “may pose a further risk to letting the inflation genie out of the bottle.”

Report highlights

• Data shows an increasing trend in mark-ups. The CEPR warns that when combined with stalling globalization since the financial crisis, stronger aggregate demand and declining market contestability, the present situation “could lead to inflationary pressures".
• Further evidence of a potential rise in inflation comes from the US, where solid US jobs growth, low unemployment, tentative signs of higher wage growth and the fiscal stimulus have all contributed to speculation about a sustained pick-up in inflation.
• The report points to a reversal in longer-term worldwide trends which have kept inflation generally low since the mid-1990s. Global economic growth is getting stronger, output gaps have closed or are close to zero in most major countries, and there is mounting evidence of rising market power in services sectors.
• The CEPR calls on policymakers to resist the ‘rising threat of trade protectionism’ in the global economy. It also calls for policy efforts to adapt anti-trust and pro-competitive market regulations to the present ‘digital age’, given the rising importance of ICT in the economy.

The CEPR is a network of 1,100 researchers based in Europe’s universities. Primarily funded by a registered European charity and with its office located in London, the organization published its conclusions through its public portal, VoxEU.org, which self-describes its role as to “enrich the economic policy debate in Europe and beyond".

Inflation set to rise? 

“Looking forward, a continuation of the stalling globalization observed since the crisis poses an upside risk to future inflation,” state the report’s authors. “If more intense competition in product and labour markets contributed to global disinflation over recent decades, then it follows that waning structural reform ambition – against the backdrop of strengthening global growth – could lead to inflationary pressures.”

You can find out more about Orbis here. The full report is available here.