Soaring UK inflation is not the result of higher corporate profit margins, even food prices, a former Bank of England rate-setter said, echoing similar findings from current members of the Monetary Policy Committee.
Michael Saunders, senior economic adviser at consultancy Oxford Economics, said on Monday that “greed inflation”, in which companies push up inflation by raising prices more than their own price pressures require, does not “reflect the UK’s Reality”.
Instead, “the vast majority of the rise in inflation reflects cost pressures on energy and other commodities,” said Sanders, who served on the Monetary Policy Committee between 2016 and 2022.
Many central banks have warned that “greedy inflation” could exacerbate price pressures. U.S. corporate profit margins hit post-WWII highs in 2022 study Courtesy of University of Massachusetts Amherst.
Natixis research found that the profitability of euro zone companies has also expanded significantly over the past two years.
Saunders’ comments echo those of Bank of England Deputy Governor Ben Broadbent, who said last week that Britain’s “profit share of national income has not increased” due to concerns about “windfall profits” from supermarkets. “.
say the same MeetingAfter the central bank raised interest rates by 25 percentage points to 4.5%, Bank of England Governor Andrew Bailey said the figures for the euro zone and the UK were “different” in terms of total corporate profits.
Saunders noted that while margins for energy companies have risen sharply, total profits for non-financial groups (excluding oil and gas) have declined in the year to the third quarter of 2022 and are near past 25-year lows , as a share of GDP.
“Clearly, the unusual price increases in a small number of firms do not reflect the general pattern, with manufacturing and service firms seeing declining profits as a share of turnover and total GDP,” he wrote.
data from The profitability of UK businesses, excluding oil and gas producers, fell to one of the lowest levels on record in the quarter to the third quarter of 2022, ONS figures showed in February.
Saunders said food inflation hit a 45-year high of 19.2% in March, largely due to a nearly 30% rise in input prices for UK food manufacturers, while the cost of imported food rose by more than 40%.
He added that the current decline in farm prices has not yet been reflected in consumer food inflation because of “the usual lag rather than windfall”.
Sanders said high inflation, which dents corporate profits, has implications for monetary policy because it reduces the need to raise interest rates.
If high inflation is squeezing profits and wages, “weakness in economic activity is likely to be more severe and longer-lasting than would have been the case if profits were buoyant, creating disinflationary pressures that could help lower inflation significantly”.