Two-thirds (!) of inflation in Europe is due to excess corporate profits. So says the President of the European Central Bank (ECB), Christine Lagarde. The Momentum Institute also comes to this conclusion for Austria. According to calculations by the International Monetary Fund (IMF), at least half of European inflation can be attributed to the profits of the crisis. While other countries subtracted profits from the crisis and intervened in prices, Austria remained inactive. The result: inflation in this country is still significantly higher than the average for euro countries.
In an article recently published by the IMF, new facts are laid on the table: High wage deals are not responsible for high inflation, as the ÖVP and the Greens like to claim and Finance Minister Brunner recently sang in the ORF report. Instead, it’s corporate profits. According to the IMF, they account for half of all inflation. The reason for this is that corporations have not just added rising energy prices to their products, but much more.
The head of the ECB, Lagarde, also speaks in the Cause: she fears that corporations “test” people to see if they are willing to pay absurdly high prices. She comes to the conclusion that nearly two-thirds of inflation is due to excess corporate profits. She is not alone in that estimate.
“The rise in corporate profits accounted for two-thirds of the domestic share of inflation in the first quarter of 2023,” writes economist Joel Tölgyes of the Momentum Institute on the situation in Austria.
Bad testimony for the ÖVP’s inflation management.
Austria is in a particularly bad position in an EU comparison. With inflation at 7.8%, we are well above the EU average of 5.5%. However, the Green-Black government refused to take countermeasures from the start. Limits on rents, energy and food have not led to economic collapse in other countries, as the ÖVP always predicts. Purchasing power has not decreased in these countries either.
At the same time, in 2022, Austria recorded the biggest drop in real wages since records began. This was despite employers complaining that agreed wages were too high (though rarely more than an average inflation adjustment). In the end, inflation nullifies the increase in wages, causing not only purchasing power to suffer, but mainly workers. Because living and shopping is becoming more and more inaccessible for them.
Spain: Second lowest inflation thanks to price interventions and profit tax excess
But what helps against inflation? In other European countries, capping prices has proven its worth time and time again. Spain, for example, capped rent, energy and food prices at the start of the war of aggression against Ukraine and suspended VAT on food. An excess profits tax of 4.8% for banks and 1.2% for energy companies was also levied to counteract the tendency of a few to get rich in the crisis. The money was then invested in its own population. Free public transport tickets, more social housing and on-time payments for financially weaker households were at the top of this last year.
The result is impressive: Spain’s inflation rate of 1.6% (Belgium level) is not only far below Austria’s level, but also far below the EU average. Only in Luxembourg is inflation even lower, 1%.