Rising corporate profits have caused 45% of inflation in Europe, compared to 40% for rising import prices and just 15% for workers’ wages, according to research by IMF economists.
by Ben Norton
Part 1
Corporate profits have been the biggest contributor to inflation in Europe since 2021.
This is according to a study published by the International Monetary Fund (IMF).
“Rising corporate profits account for almost half the increase in Europe’s inflation over the past two years as companies increased prices by more than spiking costs of imported energy”, wrote IMF economists this June.
This is according to a study published by the International Monetary Fund (IMF).
“Rising corporate profits account for almost half the increase in Europe’s inflation over the past two years as companies increased prices by more than spiking costs of imported energy”, wrote IMF economists this June.
The IMF said “companies may have to accept a smaller profit share if inflation is to remain on track to reach the European Central Bank’s 2-percent target in 2025”.
IMF economists Niels-Jakob Hansen, Frederik Toscani, and Jing Zhou detailed their findings in a research paper, “Euro Area Inflation after the Pandemic and Energy Shock: Import Prices, Profits and Wages”.
They found that domestic profits were responsible for 45% of the average change in consumption deflator (inflation) from the first quarter of 2022 to the first quarter of 2023, whereas rising import prices contributed 40%.
Some of the main factors contributing to rising import prices have included supply-chain disruptions due to the Covid-19 pandemic, the war in Ukraine, and Western sanctions on Russia – one of the world’s leading producers of oil, gas, fertilizer, and wheat – which caused a big spike in global commodity prices.
However, the share of inflation caused by import prices reached its peak in mid-2022 and has since been falling.
This suggests that post-pandemic supply-chain problems have largely been solved, and some commodity prices have dropped. But corporations have continued hiking prices anyway.
The IMF economists noted that “the results show that firms have passed on more than the nominal cost shock, and have fared relatively better than workers”.
Many neoliberal economists and Western central bank officials have ignored the rise in corporate profits, however, and instead blamed inflation on workers’ wages.
In response to the inflation that shot up as the world came out the pandemic, the European Central Bank and US Federal Reserve have been aggressively raising interest rates, at a speed not seen since the Volcker Shock of the 1980s.
Fed chair Jerome Powell admitted that his goal is to “get wages down”.
Former US Treasury Secretary and World Bank chief economist Larry Summers called for five years at 6% unemployment or a year at 10% unemployment in order to bring down inflation.
They put the blame largely on workers, overlooking how companies have exploited a time of uncertainty to make a killing.
In response to the inflation that shot up as the world came out the pandemic, the European Central Bank and US Federal Reserve have been aggressively raising interest rates, at a speed not seen since the Volcker Shock of the 1980s.
Fed chair Jerome Powell admitted that his goal is to “get wages down”.
Former US Treasury Secretary and World Bank chief economist Larry Summers called for five years at 6% unemployment or a year at 10% unemployment in order to bring down inflation.
They put the blame largely on workers, overlooking how companies have exploited a time of uncertainty to make a killing.
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