This sharp recovery in profits reflects, at least in part, the dramatic swing over the past couple of years from relatively heavy business price discounting to the restoration of a significant degree of pricing power. The most visible manifestation of the return to pricing power can be seen in the recent acceleration of core consumer prices.
The twelve-month percent change in the core PCE price index, which stood at just above 0.8 percent in December of last year, was at 1.4 percent in May. To better understand recent developments, it is helpful to view prices from the perspective of consolidated costs and profit margins.