Profits feeding inflation
Across the developed world, we are hearing the argument that high costs are “profit inflation,” meaning that rising prices stem mainly from rising profit margins. This is confirmed by reputable economists at multinational banks like UBS and others, by the chief economist of the European Central Bank, Philip Lane, and by its president, Christine Lagarde. Even the International Monetary Fund has concluded that since the beginning of 2022, inflation in the eurozone is 45% caused by an increase in corporate profits, 40% by the cost of imports and only 25% by an increase in salaries.
Over in Greece, the public discussion about the unbearable increase in prices steers clear of such matters – with the mainstream media playing a key role in this – and makes sure not to tread on the toes of the holiest of holies: corporate profit. It was noteworthy, therefore, when the subject was brought up last week by Parliament’s State Budget Office – providing further confirmation of the body’s independence and gravitas. Indeed, in its report on fiscal developments in the first quarter of the year, the authority referred to “greed inflation.”
Food and other products of mass consumption are more expensive in Athens than they are in Munich
“The phenomenon has been described as ‘greedflation’ and it raises certain questions,” said the report. “The effectiveness of any monetary policy aimed at curbing it ought to rely more on containing corporate profits than on controlling wage hikes. In other words, getting inflation back down to 2% without reducing profit margins will take longer and necessitate higher interest rates, with the respective negative consequences this has on economic activity more broadly.”
If, therefore, the rising cost of living is indeed the result of greedflation, it obviously cannot be dealt with by giving out more handouts and subsidies, and especially not horizontal ones, benefitting some 8.5 million citizens, as has been indicated by official lips. Targeted measures do help relieve some of the pressure on vulnerable households as prices on food and other essentials (are allowed to) continue rising, but they ultimately end up boosting profits, which are the main drivers of the high costs, when some form of control over the markets is not implemented.
The problem appears more acute in Greece compared to other countries because a large part of industry and commerce have been spoiled and have learned to operate with high profit margins, the likes of which are rarely seen anywhere else in Europe, and often in a setting of weak competition. As a result, food and other products of mass consumption are more expensive in Athens than they are in Munich.
If there is a genuine desire to create a new, sustainable production model, the center of gravity in terms of profits and capital needs to be shifted to include business that produce modern products and services. This can be accomplished with incentives of some form, whose direction would be determined by the state. But the question is, how can such a plan hope to succeed in this untamed landscape of prevalent profiteering?
