The Price Puzzle: The Analytics Behind Company Pricing & Inflation

Do price increases cause inflation, or does inflation cause price increases? Where does the money from an inflation increase go?

This is not investment advice in any shape or form. All opinions, analyses, and commentary are my own.

Many brands are seizing on the current inflationary environment to raise prices. It’s a vicious circle — inflation expectations (or reality) leads to rising prices, which then leads to higher inflation, which leads to higher prices...you get the picture. Like the classic chicken and the egg problem, how do we figure out the relationship between inflation and price increases?

And, when a company raises prices, where does the extra money go? An inflation-driven price increase is supposed to be a result of increasing costs. If this is the case, all else equal, we might expect to see constant profit margins on increasing revenue to keep up with rising costs. Do we see this?

Unilever, the maker of everything from Ben & Jerry’s ice cream to Dove soap and so much more, recently announced its prices were up 11% in the previous year. This is on top of consistent previous price increases. With the exception of early 2018 and the initial COVID quarters…