Profits rather than labour costs and taxes have accounted for the lion’s share of domestic price pressures in the eurozone since 2021, according to the European Central Bank.
Europe’s companies are exploiting high inflation to increase their profit margins. Policymakers have repeatedly called for wage restraint but concerns are mounting that a bigger driver of the wave of price rises may be companies using inflation as an excuse to increase profit margins, a trend unions have described as “greedflation”.
A gathering of the ECB council was shown a slide presentation that revealed profit margins had been rising rather than falling – as would normally be expected when the price of raw materials and other business expenses such as transportation and wages rose.
“It’s clear that profit expansion has played a larger role in the European inflation story in the last six months or so,” said Paul Donovan, the chief economist at UBS Global Wealth Management.