Profit inflation and a basket full of holes
There is certainly an inflation problem in the United States and Europe, and its reappearance after decades is a global phenomenon. No country, no economy, no one is immune.
However, inflation is not a neutral phenomenon. As long as consumption holds up, companies pass the increased costs on to their customers. Even if they keep the same rate of profit, they increase their profits as an absolute number, since the same rate of profit is calculated on increased base prices. In addition, many companies take advantage of the situation to increase their profit margins. Real profits are rising, while real wages are falling, Paul Donovan, chief economist of UBS Global Wealth Management, wrote recently in the Financial Times, referring to the US economy. The problem is called profit inflation.
According to the Labor Institute of the General Confederation of Greek Workers (INE/GSEE), since April this year, the minimum wage has lost 19% of its purchasing power. In 2022, when inflation is hovering at around 10%, the losses are greater for the lowest incomes, reaching 40% for households with a monthly income of up to 750 euros. Note this too: In the first half of this year, Greek natural gas providers had the second highest profit margin in Europe. There’s profits, and there’s massive profits.
Furthermore, the fact that inflation is currently a global problem does not explain why the same basic consumer goods and necessities are much more expensive in Greece than in Germany or other European and Mediterranean countries, even though some of these countries have higher wages, more expensive rents and other factors that affect cost. It does not explain why the same supermarket chains sell goods for noticeably less in their stores in Munich than they do in their stores in Athens. The answer is because competition doesn’t work in Greece. Instead, we have the “market of cronies,” where easy and big money is made.
These systems are not touched by Greek governments – certainly not the current one – even though the tsunami of price hikes, if left unchecked, will turn into a kind of looting at the expense of the people’s income. There is no magic solution. But if a government wanted to put a stop to this tsunami, it would act with responsibility, seriousness and professionalism – and it certainly wouldn’t work against the independent watchdog, the Hellenic Competition Commission. And after obtaining a real picture of the economic details of each sector from the relevant bodies (so as not to be ignorant), it would invite all those involved – from retail chains to importers, producers and manufacturers – and impose a broad agreement and cooperation to lower prices.
Nothing was done in this direction. Instead of some real fight against inflation there is the impression of a fight, with the launch of the so-called “household basket” – a set of products at supermarkets protected from inflation. It is a “basket” full of holes. The price of the products that go into it will rise modestly. But if this price needs to rise excessively, then it will be removed from the basket – with system and order.
