Can surging corporate profits actually spur inflation?
Rising corporate profits accounted for almost half the increase in Europe’s inflation over the past two years, according to the International Monetary Fund.
This is a result of companies raising prices by more than the costs they have had to bear.
Europe’s higher inflation so far mainly reflects higher profits and import prices, with profits accounting for 45% of price rises since the start of 2022.
What is greedflation? Is it wrong?
Some call it profiteering. The IMF asserts that Europe’s businesses have so far been shielded more than workers from the adverse cost shock. Profits were about 1% above their pre-pandemic level in the first quarter of this year. Meanwhile, compensation of employees was about 2% below trend.
Early last month, The Guardian newspaper cited a report by researchers at the trade union Unite that focussed on profits made by Britain’s two largest supermarket chains. Unite’s figures, which are drawn from the firms’ own financial reports, show that Tesco’s and Sainsbury’s operating profit margins in 2022 were the highest in eight years at 4.6% and 3.5%, respectively.
It seems the pandemic and then the Russian invasion of Ukraine gave both firms the chance to reset prices in the public’s mind.
An article last year by the Economic Policy Institute shows how US company profits had contributed to price growth during the peak of the pandemic – they chipped in far more significantly than either labour costs or raw material costs had.
And to show this is not normal, the author has also indicated the average between 1979 and 2019. In past periods, the average corporate profit contribution to inflation was only 11%, while it has grown to about 54%.
Are healthy corporate profits a sign of a wealthy and progressive nation?
Script and presentation: K. Bharat Kumar
Production: Shibu Narayan
Videography: Thamodharan Bharath
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