Corporate Profits Could Be the Key to Understanding Inflation’s Stubbornness

Businesses are taking advantage of the current economic climate to boost their profit margins, causing inflation to be more stubborn than central banks anticipated. This is the conclusion reached by some economists as inflation continues to outpace targets set by the European Central Bank and other institutions.

Figures released by the European Union’s statistics agency indicate that consumer prices in the eurozone rose by 7% YoY in April, more than three times the target set by the European Central Bank. However, the core rate of inflation, which excludes food and energy prices, only edged down to 5.6% in April from a record high of 5.7% in March.

The persistence of inflation is puzzling central bankers, who believed that the rise in prices would be a temporary phenomenon. However, some economists argue that businesses are deliberately driving up prices in order to increase their profit margins. The pandemic has created a situation where demand for goods and services is high, while many supply chains are disrupted, causing shortages.

As a result, businesses are able to charge higher prices for their products without fear of losing customers. This has led to a situation where inflation is being driven by more structural factors, which could be harder for central banks to tackle with their usual tools, such as interest rate hikes or quantitative easing.

While some economists argue that central banks should continue to raise interest rates in order to rein in inflation, others warn that this could further destabilize the already fragile global economy. With the pandemic continuing to cause significant disruptions, it remains to be seen how central banks will address the challenge of rising inflation and its impact on businesses and consumers alike.

Latest news

Related articles