In English, the expression “greedflation” is used to refer to these corporate superprofits that fueled the post-pandemic inflationary fever. For some analysts, the rise in profit margins has generated a profit-price spiral… which, however, should not last.
At the beginning of March, during a retreat of the Governing Council of the European Central Bank held in Finland, the contribution of excess corporate profits to the sharp rise in inflation deserved particular attention. The data articulated in more than two dozen slides presented then to the institution’s 26 policymakers “showed that corporate profit margins have risen rather than fallen, as one would expect when input costs rise so sharply.” “, we could read in a text from the Reuters agency. The subject is still debated.
France Info recently recalled that the rise in prices caused by the increase in corporate profit margins was retained by Christine
Lagarde, President of the ECB, on March 16, during a press conference on the causes of inflation. “Many companies have been able to increase their margins in sectors that have suffered from the supply restrictions and the resurgence of demand,” she lamented.
Shortly before, Philip Lane, member of the Executive Board of the ECB, took up the theme at a conference in Dublin on 6 March. According to comments taken from a blog of the Figarothe recovery in demand has allowed companies to also increase profit margins in sectors with asymmetries between supply and demand,
he denounced in substance. To add that the improvement of the situation on the side of the bottlenecks in the supply chains was slow to pass through to prices.
In an interview at New York Times, Fabio Panetta, also a member of the Executive Board of the ECB, underlined that in Europe, central banks are not only concerned with wage increases for workers. They also say they are concerned about the profits of big business. He pointed the finger at these companies “pushing their prices beyond what is necessary to absorb the increase in costs”, then contrasting the expression profit-price spiral with that, evoked more frequently in the discourse of central banks, of spiral wages-prices. “Some producers tend to exploit bottlenecks or inflationary surges, which make it more difficult to identify the cause of price increases. »
It is shown that in the fourth quarter of 2022, half of the pressure on prices in the euro zone came from profits, and the other half from wages. In France, wages accounted for 33% of the rise in production costs during this quarter, compared to 9% for intermediate purchases (energy, raw materials), and 62% came from the jump in profit margins, writes the daily. The cross. It is added that the profit margin of listed companies in the euro zone averaged 8.5% in March, down from 7.2% at the end of 2019.
Same phenomenon here
The phenomenon is similar in North America. The magazine Fortune echoes the finding of a study published in January by the Federal Reserve of Kansas City concluding that corporate profit margins were, in 2021, the most important factor fueling inflation in economic history. Nothing less ! This did not prevent the companies making up the Fortune 500 from posting the following year a record cumulative profit of US$1.8 trillion, on revenues of US$16.1 trillion, or a margin of 11%.
In Canada, the Business Outlook Survey for the third quarter of 2022 reported that in the post-pandemic recovery, many businesses have changed their pricing behaviors in response to a growth high costs, strong demand and widespread supply constraints.
Companies and competitors facing the same difficulties, consumers were forced to accept higher prices, for lack of choice. “Under these conditions, companies proceeded to more marked and more frequent price increases than usual,” underlined the Bank of Canada.
Obviously, this cannot last and competition will come back to impose its law, and this, in a context of expected slowdown in economic activity. For Philip Lane, “to the extent that supply capacity is expected to improve over time and demand patterns normalize, the extraordinary conditions that underpin profitability in 2022 are not expected to persist, a decline in profit margins resulting in lower inflationary pressures.
On this side, the Bank of Canada pointed out in its Business Outlook Survey for the fourth quarter of 2022 that the behavior mentioned in the previous quarter has changed. It is pointed out that most businesses have already resumed, or will soon resume, their pre-pandemic behaviors of changing prices infrequently, waiting for concrete signs of cost increases, and closely monitoring the prices of competition.