Inflation Could Become More Persistent Due to High Profits, ECB’s Panetta Says

2 April 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – The European Central Bank has been paying insufficient attention to increased profits, which could be a driver of persistent inflation, Executive Board member Fabio Panetta said on Sunday.

He told the New York Times that whilst ‘[t]here’s a lot of discussion on wage growth […] we are probably paying insufficient attention to the other component of income — that is, profits.’

In a tweet promoting the interview, the ECB said that ‘companies’ rising profit margins could be contributing to persistent inflation’.

‘Given the situation which prevails in the economy, there could be ideal conditions for firms to increase their prices and profits’, Panetta said in the interview.

There are sectors where ‘input costs are falling while retail prices are increasing and profits are also increasing’, he said. ‘So this is enough to be worried as a central banker that there could be an increase in inflation due to increasing profits.’

Isabel Schnabel, who also sits on the Executive Board, said in a speech in Washington last week that ‘the rise in profit margins was a major driver in inflationary developments’ in the euro area.

At the ECB’s most recent press conference, President Christine Lagarde said the ECB had done ‘some assessment of the increase in margins by the corporates, which played a role’ in high inflation.