2023-06-27 02:00:29
economists of International Monetary Fund stated that almost half of the increase in inflation in the last two years in Europa must be “to the increase in corporate profits” since the companies “raised prices more than they did the costs of imported energy”.
The analysis stems from a study titled “Inflation prospects in Europe depend on how wage increases are absorbed by corporate profits” which was prepared by economists Niels-Jakob Hansen, Frederik Toscani, Jing Zhou.
In the document, the economists recalled that following the skyrocketing import costs generated by the war between Russia and Ukraine, in October 2022 inflation in Europe reached a maximum of 10.6% and companies unloaded on consumers more than what represented by this direct increase in costs. “Since then, inflation has receded to 6.1% in May, but core inflation – a more reliable measure of underlying price pressures – has been more persistent.”, they detailed.
“The increase in inflation to date mainly reflects the increase in profits and import prices, profits being responsible for 45% of the price increases since the beginning of 2022. Import costs accounted for around 40% of inflation, while labor costs accounted for 25%. Taxes had a slightly deflationary impact,” they detailed.
The report also explains that European companies were more protected than workers once morest inflation since while company profits “were around 1% above their pre-pandemic level in the first quarter of this year”, the wages of workers “was around 2% below trend.”
According to specialists, “now that workers are demanding wage increases to recover their lost purchasing power, Companies may have to accept a lower share of profits if they want to keep inflation on track to reach the 2% target set by the European Central Bank by 2025as forecast in our latest World Economic Outlook (WEO) report.”
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