Pass-Through of Wages and Import Prices Has Increased in the Post-COVID Period

Annual CPI inflation reached 9.1 percent in June 2022, the highest reading since November 1981. The broad-based nature of the recent inflation readings has increased concerns that inflation may run above the Federal Reserve’s target for a longer period than anticipated. In this post we use detailed industry-level data to examine two prominent cost-push-based explanations for high inflation: rising import prices and higher labor costs. We find that the pass-through of wages and input prices to the U.S. Producer Price Index has grown during the pandemic. Both the large changes in these costs and a higher pass-through into domestic prices have contributed toward higher inflation.
Has Market Power of U.S. Firms Increased?

A number of studies have documented that market concentration among U.S. firms has increased over the last decades, as large firms have grown more dominant. In a new study, we examine whether this rising domestic concentration means that large U.S. firms have more market power in the manufacturing sector. Our research argues that increasing foreign competition over the last few decades has in fact reduced U.S. firms’ market power in manufacturing.
Many Small Businesses in the Services Sector Are Unlikely to Reopen

The services sector was hit hard during the COVID-19 pandemic. Small businesses were particularly affected, and many of them were forced to close. We examine the state of these firms using micro data from Homebase (HB), a scheduling and time tracking tool that is used by around 100,000 businesses, mostly small firms, in the leisure and hospitality and retail industries. The data reveal that 35 percent of businesses that were active prior to the pandemic are still closed and that most have been inactive for twenty weeks or longer. We estimate that each additional week of being closed reduces the probability that a business reopens by 2 percentage points. Moreover, an additional week of business closure lowers the share of workers that are rehired at reopening. Our estimates imply that only about 4 percent of the workers that are still laid off from the currently closed businesses will eventually be rehired.
How Did China’s COVID-19 Shutdown Affect U.S. Supply Chains?

The COVID-19 pandemic has had a significant impact on trade between the United States and China so far. As workers became sick or were quarantined, factories temporarily closed, disrupting international supply chains. At the same time, the trade relationship between the United States and China has been characterized by rising protectionism and heightened trade policy uncertainty over the last few years. Against this background, this post examines how the recent period of economic disruptions in China has affected U.S. imports and discusses how this episode might impact firms’ supply chains going forward.