She did it again. Christine Lagarde, President of the European Central Bank (ECB), stressed for the second time during the interest rate hike in May that some companies had contributed to inflation by widening their profit margins. And every time the ECB president talks about the profits, the dispute comes up a little louder. There is then talk of "greed-flation", of greedy companies whose prices would have to be capped or whose profits would at least have to be taxed away. Now, however, the ECB President is only talking about a few companies – that can mean all or nothing. So what is the situation really?
Patrick Bernau
Editor responsible for the economy and "value" of the Frankfurter Allgemeine Sonntagszeitung.
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Stephen-John Swierczyna
Information Graphics Editor
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In any case, corporate profits are not the main reason for last year's high inflation. No one seriously claims such a thing. Imports that came into the eurozone alone had risen in price by twelve percent – and the profits of companies are far from being able to keep up. Earnings inflation remained below general inflation.
But these are all the figures of the past year. Inflation is not what it used to be. Meanwhile, the prices of gas and oil are no longer rising. Inflation, however, has not been defeated, it still stands at more than seven percent. Now, however, it is mainly food that is becoming more expensive: sometimes the prices for vegetables rise, sometimes there is suddenly less margarine in the package.
Inflation has changed
Gastronomy is also becoming more expensive – for hotel rooms that would once have cost 80 euros, some hotels now charge 220 euros. In most restaurants, the menus had to be reprinted, in others the landlord did not keep up with the reprinting and simply charged the higher price. Last but not least, furniture and low-tech electrical appliances such as toasters are currently playing a role.
But if expensive oil and gas are no longer to blame for inflation, then the view will change. Now the European Central Bank wants to know where the remaining price increases come from and how they come about.
Whenever an inflationary phase begins, the economy is afraid of a wage-price spiral: when prices rise, workers lose purchasing power. So they demand all the higher wages. This, in turn, depresses the profits of companies, and indeed of many companies at the same time. So companies raise prices – and that's how inflation becomes entrenched. At the same time, higher wages ensure that people can afford more and that companies can raise their prices more easily. So is it now wages that continue to keep inflation high? Or is it just the corporate profits?
Consumers are fighting back, but their opportunities are limited
Actually, one might expect the Germans to limit the profits of companies. As consumers, they can make sure that prices are kept in check. If a product becomes too expensive, people won't buy it. And this much is certain: Germans pay close attention to what they spend their money on – in these months in many cases even more than before. After all, money has become scarcer. In retail, for example, Germans manage not to spend more money than in the previous year. This is only possible if you think carefully about your expenses and keep switching to cheaper products.