Fabio Panetta, a member of the executive board of the European Central Bank (ECB), has stated that companies that increase their profit margins could be helping to drive inflation. In an interview with the New York Times, Panetta warned about the effect that companies that increase such margins could have on inflation levels in the long run.
ECB’s Panetta links profit margins to inflation
Fabio Panetta, a member of the executive board of the European Central Bank (ECB) and former deputy governor of the Bank of Italy, has drawn attention to the effect that increasing profit margins of various companies could have on inflation levels. in a interview Delivered to the New York Times on March 31, Panetta discussed these profit and pricing practices, and their possible link to high inflation levels in Europe.
The headwinds currently facing the global economy could lead companies to increase their profit margins if they expect an increase in their costs, which can come from different sources, according to Panetta. He stated:
“We are probably not paying enough attention to the other component of revenue, namely profit. The prevailing situation in the economy could provide the ideal conditions for companies to increase their prices and profits”.
However, Panetta explained that his statements did not imply that the European bloc would act to control these prices. Instead, he clarified that he wanted to examine all the factors that were affecting inflation levels.
Inflation levels falling, but far from the target
Preliminary numbers issued by the European Union indicate that March ended with an inflation rate of 6.9%, cooling from the 8.5% reached in February. This is due to the sharp drop in energy prices across Europe. However, the prices of the core elements of European inflation, which exclude energy and food, have continued to rise, reaching a record high of 5.7% during March.
This means that the ECB is likely to keep raising interest rates for the foreseeable future as it takes its data-driven approach. This is the view of Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, who fixed:
Policy makers at the ECB will not attach much importance to the fall in headline inflation in March and will be more concerned that the core rate hits a new record.
On March 16, the ECB raised interest rates by 0.5%, with President Christine Lagarde saying that inflation is “projected to stay too high for too long”, with levels still far from target for the year. 2% proposed by the institution.
What do you think of Fabio Panetta’s opinion on the increase in profit margins and its effect on inflation? Tell us in the comment section below.
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