For several months, every time we go to the supermarket, we have watched helplessly as the price of bread, pasta, milk… It’s the same when we pay our gas and electricity bills. The disruptions in supply and demand for goods and services caused by the pandemic and aggravated by the invasion of Ukraine have caused significant price increases not seen in decades, affecting in particular foodstuffs, raw materials and energy. According to the results of a survey launched on Twitter by Javier Aznar, which received 1,147 responses in early June, the first cause of recent inflation is supply chain disruptions (55%), followed by fiscal policy /monetary (38%), the market power of companies (6%) and ESG strategies (1%, an acronym in English for Environment, Social and Governance).
Let’s see what recent studies indicate. Ana Maria Santacreu and Jesse LaBelle, researchers at the Federal Reserve Bank of St. Louis, show that in the United States much of the rise in producer prices can be attributed to supply chain disruptions, indicated as the first factor of importance in the Twitter survey, when there is a very strong increase in demand. On the other hand, Josh Bivens, research director at the Economic Policy Institute in Washington (IPE), underlines the contribution of the extraordinary profits of companies, which have exploded since the start of the covid-19 crisis, and whose growth is related to market power, the third factor in the aforementioned investigation. He argues that it is possible that companies have increased their profit margins beyond what is necessary to cover cost increases, taking advantage of the current situation of rising prices for intermediate products.
Josh Bivens indicates in the IPE blog that rising profits contributed about 54% of the total price increase since the start of the pandemic until April 2021, while disruptions in value chains account for 38% and costs labor 6%. In the euro area, however, the story differs in that rising energy prices contributed more than other factors to inflationas Emilio Ontiveros recently pointed out in this newspaper referring to imported inflation.
Data from the latest economic bulletin published by the European Central Bank indicates that year-on-year inflation in May 2022 was 8.1%, with energy prices 39% above their level a year earlier and those of food by 7.5%. He also notes that there are many job vacancies, wage growth has started to pick up, and inflation is expected to remain high through 2022, even excluding food and energy prices from the count. Surprisingly, no reference is made to the bexceptional business benefits as a potential factor that also contributes to price increases. In the European Union (EU) haven’t corporate profit margins increased as much as in the United States? Let’s see. Although corporate and industry data indicate that profit margins fell after the introduction of the euro, globally there is evidence of a long-term upward trend in the sector manufacturing after 2010. The economists De Loecker and Eeckhout, for a sample of 134 countries, 16 from the EU, in a recent academic publication.
In short, although the empirical evidence is incomplete and more recent data on corporate profit margins are needed to draw conclusions about what happened after the pandemic, the potential relevance of increased concentration in certain sectors manufacturers should not be ruled out in advance with the consequent increase in market power and price fixing, as a candidate for contributing to inflation. For this reason, advocating for a windfall tax, as already applied in Italy and announced in Spain for electricity companies, and recommended by the European Commission and the International Monetary Fund for Energy, could also be considered for other sectors. Rapid increases in interest rates may not be enough to stem inflationary pressures in the medium term, if not accompanied by other measures.
Exclusive content for subscribers
read without limits