policymakers faced up last week to some cold hard facts: companies are profiting from high inflation while workers and consumers foot the bill.
The idea that companies have been raising prices in excess of their costs at the expense of consumers and wage earners is likely to anger the general public.
“The economics of profitability suggest we might see more of a profit squeeze coming up,” ECB Chief Economist Philip Lane told Reuters. “European firms know that if they raise prices too much, they will suffer a loss in market share.” The 106 companies included in the survey ranged from French resort owner Pierre et Vacances to carmaker Stellantis to luxury goods group Hermes and Nordic retailer Stockmann.
For example, wages were mentioned 14 times in ECB President Christine Lagarde’s latest news conference while margins didn’t get a single mention. Her deputy, Luis de Guindos, also warned that the ECB needed to be careful because labor unions might demand excessive pay rises. They cited, among others, a paper by researchers at the International Monetary Fund showing that accelerating wages have not historically led to a wage-price spiral.ECB policymakers gathered in Finland went through similar data sets showing that profits had outpaced wages thanks to savings built up during lockdowns being spent, but also because of companies’ power to set prices, the sources said.