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Profit-led or cost-led inflation? Propagation effects through the EU inter-industry network

Author

Listed:
  • Giacomo Cucignatto

    (Sapienza University of Rome, Italy)

  • Nadia Garbellini

    (University of Modena and Reggio Emilia)

  • Facund Fora Alcalde

    (Autonomous University of Barcelona and University of the Balearic Islands)

Abstract

The return of persistent inflation in OECD countries has been the most significant macroeconomic phenomenon in recent years. This article analyses different explanations for the current inflationary dynamics, from which various policy recommendations arise. Specifically, by using a Multi-Regional Input-Output (MRIO) model, the article investigates whether the rise in profits and profit share is the result of changes in the behaviour of firms or just the natural outcome of rising energy costs, in the case of France, Italy and Spain. Our results indicate that companies raised prices more than necessary in order to maintain their levels of profitability in each of the European economies analysed, confirming that inflation hikes were led by surging profits. This implies that the introduction or strengthening of price controls would help to rapidly bring inflation under control, protecting the purchasing power of households.

Suggested Citation

  • Giacomo Cucignatto & Nadia Garbellini & Facund Fora Alcalde, 2023. "Profit-led or cost-led inflation? Propagation effects through the EU inter-industry network," PSL Quarterly Review, Economia civile, vol. 76(306), pages 261-276.
    • Handle: RePEc:psl:pslqrr:2023:35
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    File URL: https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/18215/17107
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    References listed on IDEAS

    as
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    3. Mr. Shafik Hebous & Dinar Prihardini & Nate Vernon, 2022. "Excess Profit Taxes: Historical Perspective and Contemporary Relevance," IMF Working Papers 2022/187, International Monetary Fund.
    4. Servaas Storm, 2023. "Profit inflation is real," PSL Quarterly Review, Economia civile, vol. 76(306), pages 243-259.
    5. Roberto Lampa & Gianmarco Oro, 2023. "Can the side effects of sanctions and energy inflation trigger the disintegration of the international monetary regime?," PSL Quarterly Review, Economia civile, vol. 76(306), pages 225-242.
    6. Riccardo Bellofiore & Francesco Garibaldo & Mariana Mortagua, 2015. "A credit-money and structural perspective on the European crisis: why exiting the euro is the answer to the wrong question," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(4), pages 471—490-4, October.
    7. Ignazio Visco, 2023. "Inflation Expectations and Monetary Policy in the Euro Area," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 51(2), pages 111-129, September.
    8. Isabella M. Webe & Evan Wasner, 2023. "Sellers’ inflation, profits and conflict: why can large firms hike prices in an emergency?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 11(2), pages 183-213, April.
    9. Guilherme Spinato Morlin, 2023. "Inflation and Conflicting Claims in the Open Economy," Review of Political Economy, Taylor & Francis Journals, vol. 35(3), pages 762-790, July.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Roberto Lampa & Gianmarco Oro, 2023. "Can the side effects of sanctions and energy inflation trigger the disintegration of the international monetary regime?," PSL Quarterly Review, Economia civile, vol. 76(306), pages 225-242.

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    More about this item

    Keywords

    inflation; input-output; profit-price spiral; price controls;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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