Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. NEW YORK — It wasn’t quite a victory lap. But hours after the consumer price index showed inflation has slowed to its lowest level in two years, National Economic Council Director Lael Brainard had a message to corporate America about how she expects prices to fall in the coming months. “It will be important for corporations to continue to bring their markups back down after having raised them to unusually elevated levels over the past two years,” she said to a Wall Street audience at an event hosted by the Economic Club of New York on Wednesday. Markups on goods “should unwind if customers become more price-sensitive and firms compete more intensely,” she added. Progressives have been keen to describe the soaring prices that occurred over the last two years as “greedflation” — pointing to rising corporate profits as proof-positive that Americans were being bilked as inflation climbed. While Wall Street may have heard echoes of that in Brainard’s description of so-called “price-price spirals” — which refers to when consumer prices rise faster than the costs borne by businesses — her comments signal that the administration will be amplifying its messaging on market competition. There will be more of this in the coming days and weeks, according to a White House official. It’s unclear how much air is left in the balloon when it comes to draining inflation from corporate margins. “I think there is a lot of reason to believe there have been both price-price spirals and wage-price spirals,” Harvard Professor Jason Furman, the former chair of the Council of Economic Advisers under President Barack Obama, told MM. “Spiral” might not be quite the right word, Furman added. “Persistance” might be a better descriptor since rising wages and input prices kept inflation from falling quickly rather than spiraling “up and up and up.” Still, Furman said he has not “seen any convincing evidence that margins are still especially high or that there is room to lower them or that increased margins played much of a role in the inflationary process,” he said. “Instead I would say that it was the expectation of higher prices plus the increase in input prices that led businesses to raise prices.” Even if profit motivations did influence some companies to jack up prices to unusually high levels, the Federal Reserve’s regular survey of economic conditions found that business’ ability to raise consumer prices to reflect higher input costs is now a mixed bag. Per the Beige Book, which was released Wednesday afternoon: “Contacts in some Districts noted reluctance to raise prices because consumers had grown more sensitive to prices, while others reported that solid demand allowed firms to maintain margins.” (We’ll find out more about how inflation is still affecting some of those inputs when the Labor Department reports the Producer Price Index for June at 8:30 a.m.) In any case: Moody’s Chief Economist Mark Zandi, who moderated a Q&A with Brainard after she delivered her remarks, told your host that while corporate margins did “gap out” in the early days of the pandemic, “I don’t think it’s adding to inflation at this juncture.” That said — to Brainard’s point — as more signs point to consumers becoming price-sensitive, “profit margins have gone from being a headwind to inflation to a tailwind to inflation,” he added. IT’S THURSDAY — It’s a big day for proxy advisers in House Financial Services. What should we be watching for? Send tips, gossip and suggestions to Sam at ssutton@politico.com and Zach at zwarmbrodt@politico.com
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