Are corporate profits driving global inflation?

2023-05-28 20:32:21, Ekonomi CNA

Are corporate profits driving global inflation?

While food and commodity prices remain high in many countries, some economists say the persistent inflation is partly due to corporations looking to boost profits. Voice of America correspondent Veronica Balderas Iglesias brings the opinions of several experts on the various factors that have influenced the increase in inflation.

At the International Monetary Fund in Washington, researcher Daniel Leigh says there is some optimism for a modest reduction in the level of global inflation this year.

"But this will be a long fight. "We don't think most countries will reach the desired low level of inflation until 2025," says Mr Leigh.

Various factors have contributed to developed and developing economies having inflation higher than their targets.

“One factor was the rise in energy and food prices partly from the war in Ukraine. And besides, many countries are facing shortages in the labor market. The lack of sufficient workers is increasing wages."

In capitalist economies, increased demand leads to higher prices. But some analysts see an unusual form of inflation, even though, in their estimation, demand remains stable.

"In general, companies that are close enough to consumers have been able to convince them to accept not only the cost increase, but a little more than that. And this is certainly the increase in the profit margin", says Paul Donovan, economist with the company 'UBS Global Wealth Management'.

This may not be a sustainable approach, notes Mr Donovan.

"If consumers start to actually say, 'this is not a fair price increase, I'm not going to pay for this,' then companies will start to worry that if they raise the profit margins too much, the value of their name will to be damaged".

The National Retail Federation represents a broad spectrum of companies. Its chief researcher claims that consumer demand has increased dramatically and calls the arguments for "profit-led inflation" "straightforward".

"Every day many of our companies think about reducing prices. When commodity prices rise everywhere and inventories are low, retailers pass some of those costs on to consumers."

What some may see as rising prices, others see as the price limit the market will bear. Some may criticize "excess profits", while others note that profit growth is the norm in a free market system.

Economists say that profit can also be increased through good management practices.

"If you have better customers or if you have better human capital within the company, obviously you're going to have potential or you're going to have higher rates of profit," says Jonathan Fortun with the Institute of International Finance.

Declining consumer demand could force companies to hold back on price hikes and curb inflation - the main goal of the US central bank, which recently raised interest rates for the tenth time in just over a year ./ VOA

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