Saturday, July 20, 2024

Greed was the root of European inflation, but things are starting to change.

Date:

It should be noted that in the biennium 2022-2023, the increase in inflation, measured by the GDP deflator, was mainly driven by the growth of unit profits, while labor cost had a fluctuating trend and unit taxes remained relatively stable. Here is the chart The upcoming relativity from the European Central Bank.

This graph indicates that the increase in inflation was not caused by increased wages, but rather by increased corporate profit margins.

But at this point, the situation reverses, and in the first quarter of 2024, for the first time, profits are compressed and reduced. This is a sign that demand is not particularly great: prices have probably risen too much in many sectors, much more than income, and this has led to a contraction in demand that is now leading to more competition.

Moreover, the credit crunch being implemented by the ECB and banks is massive, as you can see in the chart below:

Since the end of 2022, the credit crunch has been very present and easily observable and, in many sectors, this has led to a decline in demand which has certainly helped contain inflation, but also threatens to put EU growth in a European crisis. Union and, over time, companies as well.

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