Profits and wages, who pays for inflation? We need a new agreement

Firms are demonstrating that they have sufficient market power to know how to defend themselves against rising energy and raw material prices, while maintaining constant profit margins. The ECB threatens to raise rates again, but in the absence of coordination it is a dead threat

On Wednesday, Luciano Capone took up a recent note by three researchers from the Bank of Italy, Fabrizio Colonna, Roberto Torrini and Eliana Viviano, which provides an important contribution to the debate on the role of profits and wages in the dynamics of inflation with a clear explanation of how national accounts profit data should be interpreted (i.e. with caution). The question is technical but the theme is highly political: the note tells us that the data we’ve seen circulating is about growing profits as a percentage of value added (more elsewhere than in Italy to tell the truth) they don’t necessarily show increased profit margins. Indeed, from a theoretical point of view, they are compatible with stable or even declining profit margins (because with rising energy and raw material costs and constant margins, added value grows proportionally less by increasing the weight of profits on the total ).