Ruchir Sharma is right to suggest that we should at least consider the possibility that a recession is not inevitable (“Economists See Recession Coming, So Maybe It’s Not”, Opinion, November 7) . It is always wise to allow for the unexpected, especially in today’s world of growing and heightened uncertainties.
Yet his analysis of the factors affecting inflation is notable for the omission of a critical consideration. Businesses are now operating against the backdrop of the massive market consolidations that have taken place over the past few decades. Such consolidation gives firms additional mining capacity, in terms of increased pricing power, which facilitates their pursuit of profit maximization.
As financial markets continue to pressure companies to maximize shareholder value, boards and executives may feel they have little choice but to continue to exercise this pricing power to the fullest extent possible, even if wage growth slowed somewhat. In such a scenario, inflationary pressures are less likely to recede significantly, with consequent impacts on the likelihood of a recession.
Professor Louis Brennan
Trinity Business School
Trinity College Dublin, Ireland
