In 2023, the German economist Isabella M. Weber published one of the most serious investigations among which has indicated that in the United States there has been what she calls “vendor inflation.” [sellers’ inflation, en inglés]”. Their finding confirmed that companies were passing on cost increases (especially energy costs) to sales prices, increasing their profit margins and amplifying the inflation crisis. Now, based on their work, Jorge Uxó, Eladio Febrero and Nacho Álvarez have shown that this inflation due to greed has also occurred in our country.
His ‘paper’ was published this week. It is titled “Prices, margins and salaries: inflation and its distributive consequences in Spain, 2021-2023”, and has drawn on information from the Business Margins Observatory. This tool crosses data [de la mayoría de las empresas no financieras] and methods of the Tax Agency, the Bank of Spain and the Ministry of Economy. It was created in mid-2023, in compliance with a commitment from the coalition government, and, undoubtedly, to the chagrin of the employers.
“We have calculated the evolution of business margins at a sectoral and aggregate level, and the respective contributions of labor costs [de los salarios y las cotizaciones sociales] and from the benefits to the growth of prices,” the three economists detail. “The most important factor to explain inflation is the ‘pass-through’: the transfer of costs to consumers carried out by companies,” they observe.
Exactly, this factor explains 85% of the average inflation from 2021 to 2023. Meanwhile, “the direct increase in margins [de beneficio] explains 14%” of that same data. Finally, “the impact of labor costs is very limited,” they continue.
“Based on this evidence, we cannot say that we see ‘profit inflation’ in Spain, if by this term we understand that price increases come directly and mainly from increases in business margins. However, we can talk about ‘profit inflation’ in a ‘weak’ sense: inflation arises when companies raise prices to protect their profits from higher production costs, without workers being able to compensate for it through wage increases,” explains the research.
The economic cabinet of the Workers’ Commissions (CCOO) has been insisting on this same conclusion. In one of its latest reports it stated that “the ability of companies to defend their margins has meant being able to pass on the increase in costs to sales prices, a decisive factor in explaining the strong inflation in the Spanish economy that has reduced purchasing power.” of homes.”
“However, the increase in relative margins implies that the process has gone beyond a mere defense of pre-existing margins. The process is heterogeneous by activity branch: while in 2022 energy activities largely explained the increase in margins, in 2023 other activities such as commerce and hospitality and catering take over. The process is also unequal by company size [las más grandes son las que más han exprimido la inflación y el dinamismo de la economía en general]”, this team of union experts analyzed.
Maximum benefits
In August, the Margins Observatory updated its data until the end of the second quarter of this year and confirmed that non-financial companies in our country continue to take advantage of the price crisis and have raised their profits to maximums.
The latest update of this tool includes a projection of company profits in 2024 that places them above 200,000 million euros for the first time since 2009, as far as this Observatory’s calculations extend.
The Ministry of Economy took advantage of the birth of the tool to ask companies to “moderate” their profit margins to complete the process of lowering inflation. “We must hope that in the coming months it will be transferred [a los precios] the lowering of energy prices, for example,” assessed the first report of the Observatory, in June 2023.
The Economy’s concern has not been accompanied by concrete measures and came late for the workers. While prices rose by 15% between the first quarter of 2021 and the fourth quarter of 2023, according to the IPCA (Harmonized Consumer Price Index), “the average salary per full-time equivalent job increased by 8.4% ”. As a result, in Spain, real salaries suffered a loss of purchasing power of 6% accumulated in these three years. “Only in the last two quarters of 2023 did year-on-year wage growth exceed price growth.”
This reality allows us to give another surname to the price increases of recent years: “inflation due to conflict.” After the initial energy shock, which began with bottlenecks in global supply chains and was exacerbated by the Russian invasion of Ukraine, “the increase in prices is explained by the unequal claims of businessmen and workers regarding the growth of their respective incomes.” ”, highlight Uxó, Febrero and Álvarez.
“The distributional consequences are evident: companies have passed on the increase in costs to final prices, maintaining (or even increasing) their margins. But workers have not had salary growth that compensates for this effect of inflation,” they say.
The last conclusion of their ‘paper’ is that “given the deterioration of workers’ bargaining power, we have not seen second-round wage effects.” These “second round effects” are also known as inflationary spiral and refer to the risk that wages will increase and chase the IPCA, feeding back into it. But “real wages have not been a source of inflationary pressures, but have acted as a buffer against the shock of price increases.”
Uxó, Febrero and Álvarez make a final calculation of the salary growth that companies could assume without raising prices, maintaining their initial participation in national income. “We obtain an accumulated salary growth of 4.5 points, which would be non-inflationary and feasible in Spain,” they conclude, starting from the end of 2023.
#Conflict #inflation #corporate #profits #caused #purchasing #power #crisis
