Consumers say they dislike higher prices, but many still keep spending without much resistance. That behavior is helping companies lift markups, protect margins, and grow profits even in an inflation-sensitive environment.
A recent Goldman Sachs research note points to a broader shift in pricing power. The bank cited studies showing that U.S. firms have been raising markups, while gross profit margins have also expanded.
The data suggest that what shoppers pay has increasingly moved beyond the cost of producing goods and services. Goldman economists wrote that after-tax corporate profits as a share of value added have roughly doubled, rising from about 5% in the late 1980s to over 10% recently.
That trend does not rely only on stronger business efficiency. Some of it reflects lower costs, but the bigger picture is that companies have found room to charge more without seeing the kind of broad consumer revolt that would usually follow.
Why shoppers are not pushing back harder
One reason is simple: many customers can still afford to pay. Goldman economists said studies show consumer sensitivity to price has been falling, and they linked part of that decline to rising incomes.
They also noted that higher income raises the opportunity cost of time, which means consumers search less for cheaper alternatives. In practice, that can make bargain hunting less attractive, especially for households that value convenience more than saving a few dollars.
The effect is uneven across the economy. Wealthier households tend to be less price sensitive than lower-income households, and that matters because their spending now accounts for a larger share of total consumption.
Goldman cited economist Kunal Sangani, who estimated that changes in average income and income inequality may explain roughly an 8 percentage point rise in the aggregate retail markup from 1980 to 2018. That fits the broader K-shaped narrative in which higher-income consumers keep spending while lower-income households pull back.
What this means for companies
For businesses, weaker price sensitivity creates room to defend earnings even when consumers complain loudly about inflation. That helps explain why profit margins can stay elevated while public sentiment remains poor.
The pattern also shows up in corporate results. Higher markups and expanding margins can support earnings growth, especially for publicly traded companies that can pass through costs or charge more for the same product or service.
The result is a strange gap between how consumers feel and how companies perform. People may dislike higher prices, but as long as they continue to spend, businesses can continue to benefit from that reluctance to trade down.
That tension is central to the current economic picture, where inflation anger remains high even as spending, profits, and margins keep moving in a favorable direction for companies.
Read more at: finance.yahoo.com
