IMF Says Corporate Profiteering Caused Nearly Half of Europe's Recent Inflation Surge

Economists with the International Monetary Fund on Monday echoed what progressive experts and campaigners around the world have been arguing for more than a year: Corporate profiteering has been a key driver of the recent inflation surge.

In a blog post on Monday, the IMF's Niels-Jakob Hansen, Frederik Toscani, and Jing Zhou wrote that "rising corporate profits account for almost half the increase in Europe's inflation over the past two years as companies increased prices by more than spiking costs of imported energy."

If inflation is to return to the European Central Bank's 2% target, the trio argued that "companies may have to accept a smaller profit share" as workers demand "pay rises to recoup lost purchasing power."

The economists referenced a working paper they released last week that shows corporate profits are responsible for just under 45% of the inflation spike during the coronavirus pandemic.

As the paper explains, companies have hiked prices beyond what was necessary to cover the rising prices of energy and other materials, passing greater costs onto consumers and fueling a cost-of-living crisis across Europe while padding their bottom lines.

The London-based oil giant Shell, for example, saw its profits more than double to a record $40 billion last year.

"Europe's businesses have so far been shielded more than workers from the adverse cost shock," the economists wrote in their blog post. "Profits (adjusted for inflation) were about 1% above their pre-pandemic level in the first quarter of this year. Meanwhile, compensation of employees (also adjusted) was about 2% below trend."

The IMF experts' findings were limited to Europe, but economists have similarly found that corporate profiteering is fueling price increases in the United States.

In March, the Economic Policy Institute's Josh Bivens wrote that "in normal times, corporate profits contribute about 13% to prices."

"Since the second quarter of 2020, they have instead contributed more than a third of price growth, or more than twice as much as they normally do," Bivens estimated.

Data released last month by the U.S. Bureau of Economic Analysis showed that corporate profits rose to a record high in the first quarter of 2023 even as the Federal Reserve worked to slow the broader economy with aggressive interest rate hikes.

After spending more than a year openly targeting the labor market and workers' wages, Fed Chair Jerome Powell has acknowledged in recent months that lower corporate profits could help curb inflation.

On earnings calls, top executives of major corporations have openly credited continued revenue and profit growth to their ability to raise prices even as business costs fall.

"Pricing has continued to be the big driver behind our top-line growth over the last three quarters," Kimberly-Clark's chief financial officer said during the company's April earnings call.

Liz Zelnick, director of economic security and corporate power at Accountable.US, said earlier this month that "it's clear the corporate profiteering epidemic will persist no matter how many times the Fed doubles down."

"Corporate greed is a stubborn thing and requires serious action from Congress," she added. "The Fed has not seen an adequate return on its investment in a policy that has already created fissures in the economy that could lead to recession. It's just not worth it."