The warning resounds with each “hot snap” on inflation: economists urge to avoid at all costs “the price-wage loop”. In other words, to ensure that the waltz of labels does not lead to wage increases, which would in turn fuel the upward spiral in consumer prices, and so on.
Not entering this vicious circle means giving yourself the best possible chance of limiting inflation, often presented as the most “undemocratic” tax because it affects all households blindly, and particularly penalizes the most modest.
This time though, it’s different. While INSEE is due to publish the consumer price index for the month of March on Friday, March 31, the dreaded spiral has not started, neither in Europe nor in France.
“Compensation runs after the rise in prices without ever catching up with it, emphasizes Alexandre Milicourtois, of the firm Xerfi. Many companies don’t just maintain their margins, they increase them. In short, they succeeded this time in “passing on” to consumers the surge in their supply costs. And even to go beyond, maintaining what must be called “a price-profit loop””underlines this economist.
“Burden Sharing”
Can we go so far as to say that corporate profits are becoming the new drivers of inflation? The President of the European Central Bank (ECB), Christine Lagarde set foot in the dish Thursday, March 15. She called for a “debate within society, companies”, on a “adequate sharing” of the burden of inflation, noting that “the price increase worked a bit like a tax” on households.
” Last year, describes Eric Dor, professor at Iéseg, a business school, the phenomenon was especially visible among our European neighbours. It started appearing in France in the last quarter of 2022.”
“If we look at the past year, he calculates, the increase in the cost of intermediate purchases (energy, raw materials, etc.) explained 80% of the increase in production costs in France”, analyzes Denis Ferrand, of the Rexecode Institute, reputed to be close to employers. “Wages weighed 12% and margins, on the contrary, helped to slow the rise, at -0.2 points”.
“But this ranking was completely reversed in the last quarter of 2022” : wages have climbed to 33%, against 9% for intermediate consumption and above all, margins have jumped, to weigh 62% of the rise in costs.
Agrifood, energy and services
At the beginning of the year, the stormy trade negotiations between large retailers and the food industry clearly raised the question. The former accused the latter, in particular the large groups (Nestlé, Unilever, Mondelez, etc.), of demanding price increases higher than inflation.
“Margins have generally fallen in France, but have been able to increase rather for large companies, in certain sectors: energy, but also agrifood, and certain services, points out François Villeroy de Galhau, Governor of the Banque de France. Without forgetting, adds Patrick Artus at the Natixis bank, “car manufacturers, who have focused on the largest, and therefore most profitable, models”.
Increases announced
” In this situation, continues François Villeroy de Galhau, it is important to ensure the proper functioning of competition within each sector, because it is this which best allows prices to be contained”
In the food industry, the reopening of trade negotiations in June, to take into account a fall in raw materials, will work in favor of price moderation. But the European Central Bank (ECB) must now take this phenomenon into account in its monetary policy, which until now has been “focused on the risk of a wage-price spiral”, insists Eric Dor.
Can this situation change in the coming months? “All the business leaders I meet tell me that they want to raise their prices”, answers Patrick Artus, at Natixis. An empirical finding confirmed by INSEE in a survey of manufacturers published on March 15, according to which 45% plan to increase their selling prices. If this is confirmed, the “price-profit” loop is only in its infancy.