The Third Inflation Wave: How Corporate Profits and Consumer Spending are Affected

The US is experiencing its third wave of inflation, which is being driven by profit-led inflation, according to UBS Global Wealth Management Chief Economist Paul Donovan. This occurs when companies use plausible explanations, such as higher input costs, to hike prices, but the true reason is to expand margins and keep investor sentiment high. While material costs have decreased, labor costs remain elevated, which may be a reason for businesses to push through price increases. However, profit-led inflation can damage a company's brand if consumers see the reasons for raising prices as disingenuous.