Companies are fueling inflation by increasing their margins

By calling on Thursday 15 March to open a debate on “adequate sharing” the burden of inflation, Christine Lagarde, President of the European Central Bank (ECB), shed the spotlight on a crucial question: have companies fueled the rise in prices by increasing their margins? Taking advantage of the gap between the strong demand that arose after the crisis linked to the Covid-19 pandemic and a supply that was still constrained, some companies were able to opportunistically increase their selling prices faster than their production costs.

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On this point, “France stands out from certain other countries in the euro zone”answers Eric Dor, director of economic studies at Iéseg, a management school. “In France, the contribution of margins to inflation was rather slightly negative over the whole of 2022. It was only in the last quarter that it became slightly positive. » An analysis that should, however, insists Mr. Dor, qualify finely, sector by sector, even company by company.

Rexecode makes a similar observation: in the last quarter of 2022, corporate margins contributed to inflation. But, specifies the economic institute, it is about a “recent and limited phenomenon” and that “is very much dependent on catch-up effects”. Over the rest of the year, while production prices increased by 9% between 2021 and 2022 in France, the level of margins rather “had a moderating effect on prices” final, around 0.2 points.

Weakening of demand

In the economic note published on Wednesday March 15, the National Institute of Statistics and Economic Studies (Insee) focused in particular on the agri-food industries. In this branch, “the margin rate increased sharply during 2022”until exceeding its 2018 level, while it was significantly below at the end of 2021.

So that, according to INSEE, the production prices (factory outlet prices) of the agri-food industries “were driven as much by higher raw material and energy prices as by the recovery in margins compressed the previous year”. “Margin behavior contributed to inflation, especially at the end of 2022”confirms Julien Pouget, head of the business cycle department at INSEE.

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This observation calls into question the discourse of the European Central Bank, “which consists in saying that in the face of inflation, everything must be done to avoid a price-wage spiral”observes Eric Dor. “If companies, through their margin behavior, also contribute to inflation, should anything be changed in monetary policy? »he asks himself.

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