Inflation? What inflation?

French luxury group Kering saw its shares jump 7% in morning trading in Paris on February 17, after reporting 2021 revenues of €17.6 billion ($20 billion)—35% higher than in pandemic-stricken 2020 and 13% higher than pre-crisis levels in 2019.

The strongest driver in Kering’s collection was Gucci, which saw a 32% jump in sales in fourth-quarter revenues. Peddled by A-list “brand ambassadors” Harry Styles, Jared Leto, and Squid Game’s Lee Jung jae, Gucci had a media-friendly quarter, with plenty of brand marketing from Ridley Scott’s House of Gucci, a November release featuring Lady Gaga (and Salma Hayek, wife of Kering chair and CEO François-Henri Pinault).

But while prime media exposure and the consumer interest it generates no doubt helped, most of the power behind rising revenues at Kering and other luxury brands can be attributed to something much less poetic: pricing power. As the cost of everything from energy to raw textiles rises, the prices of high-end bags, shoes, and jackets rise, too. But while the demand for mass-produced goods can drop as the middle class grows more financially insecure, the demand for luxury remains relatively inelastic.

Put simply, to a person who can afford a $10,000 designer bag, what is an extra $1,000 inflation fee added on?

Eating into profit on the low end

Outside the luxury world, rising prices bite into profitability—and hard. Nestlé, on February 17, warned profitability may decline in 2022 for the second year running as raw material and rising shipping costs are expected to worsen. “There’s almost no place in the company that’s exempt from inflation now,” Nestlé chief executive Mark Schneider said.

Unilever has also said that it expected the cost of inflation to eat into its underlying operating margin—to the tune of 140 to 240 basis points this year. Even beer isn’t safe, with Heineken noting on February 16 that it was planning to raise prices by “courageous” amounts as it faces the worst inflation in a decade—though it worried such a move might lead consumers to cut back on beer.

While mass-market brands struggle to contain inflation that has reached 20% across the consumer goods industry according to the FT, luxury remains well insulated. Luxury king LVMH reported a record €12 billion profit in 2021 driven by booming demand in the U.S. and China, and Kering similarly found affluent consumers in these two markets barely slowed buying handbags, jewelry, and clothing, despite some seriously conspicuous price hikes.

Luxury trumps inflation

Indeed, luxury fashion houses have been steadily increasing the prices for their signature bags throughout the pandemic, with very little pushback.

The price of Chanel’s iconic medium classic flap bag has been bumped up three times over 2021—each time hiking its cost by $1,000. According to WWD, the flap bag was being sold for $6,800 in January 2021, which was then hiked to $7,800 in July, and then ratcheted up to $8,800 in November—capping off a rise of 60% since November 2019, according to investment bank Jefferies, and putting it on par with the starting price of the coveted, wait list–requiring Hermès Birkin bag.

Chanel told WWD that the price increase was due to exchange-rate fluctuations and changes in production costs and uniform pricing across the world.

Despite the constant price increases, there is a Chanel bag shortage in China, according to Jing Daily, and Chinese consumers are being told they have to limit the number of Chanel flap bags to one a year.

Louis Vuitton’s forever popular Pochette Accessoires in monogram canvas has also seen a 66% price increase, from its initial $630 price tag in early 2021 to the $1,050 price it carries today.

As for Gucci, Morgan Stanley cited a report in September 2021 from the Chinese trade newsletter Fashion Business Daily that found Gucci had raised its prices in China for several key products including its Marmont super mini bag, which was hiked 9.3% to ¥8,200 RMB ($1,269).

The disparity between mass-market brands and luxury shows high-income individuals may not be as damaged by rampant inflation as the rest of the world; price hikes have certainly not stopped them from dropping four-figure sums on shiny new branded bags.