The high level of markups is an important and perhaps insufficiently recognized feature of the current economic situation. To the extent that firms can maintain these markups, profits will continue to be high, supporting investment and equity values.
To the extent that product-market competition erodes  2  BIS Review 1/2004  these markups, as is likely to occur over time, downward pressure will be exerted on the inflation rate, even if, as is likely, the recent declines in unit labor cost do not persist.2 The third unusual factor is the persistent softness of the labor market.