Rises in corporate earnings and underlying price increases may have a greater impact on inflation than is generally believed, says Fabio Panetta, a member of the Executive Board of the European Central Bank (ECB).
“There’s a lot of discussion about wage growth, but we probably don’t pay enough attention to another component of inflation, which is profits,” Panetta said in an interview with the New York Times. She points out that costs are coming down in several industries, while retail prices and profits continue to rise.
Cause for concern
Rising inflation due to rising profits is a concern for central bankers, said Panetta, who formerly headed Italy’s central bank. According to him, companies may raise their prices in anticipation of future cost increases, or because they have such a strong position of power that demand doesn’t decrease.
In the Netherlands, FNV had previously warned that inflation is being driven by “huge profits” made by companies. For example, the union has been giving out groceries that have become much more expensive, while supermarket groups are raking in billions in profits. According to the union, these prices have therefore risen unnecessarily.
Source: BNR
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