The ECB “discovers” that inflation is caused by companies. Prices increased more than costs to the detriment of consumers and workers

The meeting took place in a very isolated place, the Finnish village of Inari, Lapland. Periodically the European Central Bank travels to the various euro countries to hold some of its meetings which usually take place in Frankfurt. And all in all, given the very difficult subject to handle, being a little off the radar this time was perhaps also useful. Indeed, the experts of the European Central Bank met to carry out further studies and assessments of inflation dynamics in the euro area. The latest figure for February showed a cost of living still at 8.5% with inflation that has indeed stopped growing but which, for now, is having a hard time coming down. And so Frankfurt takes the hard line: other interest rate hikes, higher borrowing costs e sand in the gears the engine of economic growth. Several exponents of the ECB, with the governor of the Bank of Italy Ignatius Visco at the forefront , have repeatedly spoken out against a general increase in wages, despite the serious loss of purchasing power of Italian workers, already among the poorest in the euro area. Slightly heavier payrolls, according to Visco, would inevitably cause one “inflationary spiral”.

Yet, according to reports from the agency Reutersthe picture that emerged from the Finnish session gathered another reality. Economists have so far argued that price increases in raw materials, components and semi-finished products, from energy to food to computer chips, have translated into an increase in costs for businesses. But, apparently, the final price increase would have been well above the cost. So you get and corporate profits soar beyond measure, to the detriment of consumers who, moreover, are denied the possibility of asking for increases because this would favor inflation which, however, does not depend on them. According to data used in the study and collected from RefinitivEurozone consumer goods companies increased operating margins (the difference between revenues and production costs) in 2022 on average 10.7% . 106 large companies monitored included groups such as Stellantis, luxury goods group Hermes, and Nordic retailer Stockmann. And it’s them, according to reports from ECB studies (which, however does not comment officially these conclusions), to have pushed upward prices and inflamed inflation.

Statistical data also show how, conversely, wages have grown much more slowly than inflation with a loss in the effective value of wages on average of 5% compared to to 2021. Yet wages were mentioned 14 times in the last press conference of the president of the ECB Christine Lagarde , while corporate profits were never mentioned. The vice president Louis de Guindoshe also warned that the ECB must be vigilant because unions could demand excessive wage increases. The top-down approach, remember Reuters, it is causing strong bad moods too within the central bank whose employees they asked for an adjustment of wages to inflation which has not yet arrived. A “niet” that prompted ECB officials to talk about a anti-worker bias of the central bank brandishing studies of the International Monetary Fund which show that the increase in wages rarely leads to increases in inflation.

“It is clear that earnings growth has played a major role in European inflation trends over the past six months or so,” he told Reuters Paul Donovan, chief economist of UBS Global Wealth Management. “The ECB would struggle to justify its monetary policy in a context in which inflation depends above all on the price lists of companies”, he adds. Inflation fueled by higher company margins tends to self-correct since in the end companies are forced to set themselves a limit in order not to lose consumers. Therefore, the tightening of rates by the ECB would be mostly superfluousa “pain” inflicted on the economy without any benefit. The assessments formulated in Finland could therefore provide some more ammunition to the so-called “doves”, i.e. the members of the ECB’s governing council less inclined to further raise the cost of money in the euro area.

In the United States, where inflation is at 6.4% and the central bank started monetary tightening ahead of the ECB, about a year ago, the issue has been debated for some time and in a more open way. most recently was the Democratic senator Elizabeth Warren.

Formerly economist and former White House economic adviser Robert Reich he explicitly spoke of a “profit-driven price inflation” in which prices are pushed up
by companies seeking higher profits by taking advantage of the situation. Ideas not yet collected by the fed which pursues an extremely orthodox monetary policy line and faithful to the dogmas of the monetarist school. According to an analysis by theEconomic Policy Institute, cited by Reich, in US non-financial corporations, which account for 75% of the private sector, i post-Covid prices have grown by an average of 6.5% (against an average increase of 1.8% in the years 2007-2019) and more than half of the increase is attributable to profits. The cost of labor contributed only one ninth against an average of six tenths in the twelve pre-Covid years. Some voices have started to be raised more recently in Europe as well. The governor of the Portuguese central bank Mario Centeno raised the issue of the race of corporate profit margins, saying it should be placed on the European political agenda. The Italian member of the ECB board Fabio Panetta noted that so far the workers have borne the brunt of the spike in prices while company margins have remained stable, or even increased in some sectors.

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