IDEAS home Printed from https://ideas.repec.org/a/psl/pslqrr/202335.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/18215/17107
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marc Lavoie, 2014. "Post-Keynesian Economics: New Foundations," Post-Print hal-01343652, HAL.
    2. Emilio Carnevali & Matteo Deleidi, 2023. "The trade-off between inflation and unemployment in an ‘MMT world’: an open-economy perspective," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 20(1), pages 90-124, May.
    3. Mr. Shafik Hebous & Dinar Prihardini & Nate Vernon-Lin, 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)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nálepová, Veronika & Lampart, Marek, 2024. "Impact of windfall tax on market dynamics: A Cournot oligopoly model with exogenous shocks," Economic Modelling, Elsevier, vol. 137(C).
    2. Dimitri Goldztejn, 2024. "Cost-push and conflict inflation: the case of France between 2021 and 2023," FMM Working Paper 110-2024, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michalis Nikiforos & Simon Grothe & Jan David Weber, 2024. "Markups, profit shares, and cost-push-profit-led inflation," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 33(2), pages 342-362.
    2. Engelbert Stockhammer & Collin Constantine & Severin Reissl, 2020. "Explaining the Euro crisis: current account imbalances, credit booms and economic policy in different economic paradigms," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 43(2), pages 231-266, April.
    3. Rolim, Lilian & Carvalho, Laura & Lang, Dany, 2024. "Monetary policy rules and the inequality-augmented Phillips curve," Economic Modelling, Elsevier, vol. 139(C).
    4. Wildauer, Rafael & Kohler, Karsten & Aboobaker, Adam & Guschanski, Alexander, 2023. "Energy price shocks, conflict inflation, and income distribution in a three-sector model," Energy Economics, Elsevier, vol. 127(PB).
    5. Nálepová, Veronika & Lampart, Marek, 2024. "Impact of windfall tax on market dynamics: A Cournot oligopoly model with exogenous shocks," Economic Modelling, Elsevier, vol. 137(C).
    6. Lu, Saite & Coutts, Ken & Gudgin, Graham, 2024. "Energy shocks and inflation episodes in the UK," Energy Economics, Elsevier, vol. 129(C).
    7. Botte, Florian & Dallery, Thomas, 2019. "Analyse systématique du modèle de Bhaduri et Marglin à prix flexibles : « Ça dépend de la valeur des paramètres » [Systematic analysis of the Bhaduri-Marglin Model with flexible prices: « It depend," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 26.
    8. Roberto Veneziani & Luca Zamparelli & Michalis Nikiforos & Gennaro Zezza, 2017. "Stock-Flow Consistent Macroeconomic Models: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1204-1239, December.
    9. De Vito, Antonio & Pancotto, Livia & Perdichizzi, Salvatore & Reghezza, Alessio, 2023. "Don’t go on holiday in August! Market reaction to an unexpected windfall tax on banks," Economics Letters, Elsevier, vol. 233(C).
    10. Rezai, Armon & Stagl, Sigrid, 2016. "Ecological Macreconomics: Introduction and Review," Ecological Economic Papers 9, WU Vienna University of Economics and Business.
    11. Fontanari, Claudia & Levrero, Enrico Sergio & Romaniello, Davide, 2024. "A composite index for workers’ bargaining power and the inflation rate in the United States, 1960–2018," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 682-698.
    12. Siemoneit, Andreas, 2023. "Growth imperatives as a conflict between efficiency and justice," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 301394.
    13. repec:clr:wugarc:y:2016v:42i:04p:617 is not listed on IDEAS
    14. Giandomenica Becchio, 2020. "The Two Blades of Occam's Razor in Economics: Logical and Heuristic," Economic Thought, World Economics Association, vol. 9(1), pages 1-17, July.
    15. Nieto, Jaime & Carpintero, Óscar & Miguel, Luis J. & de Blas, Ignacio, 2020. "Macroeconomic modelling under energy constraints: Global low carbon transition scenarios," Energy Policy, Elsevier, vol. 137(C).
    16. Reddy, Niall, 2024. "“Downsize And Distribute” Or “Merge And Monopolize”? A Critique Of Corporate Financialization Theories," SocArXiv 2zy5h_v1, Center for Open Science.
    17. Massimo Cingolani, 2015. "Sylos Labini su Marx: implicazioni per la politica economica (Sylos Labini on Marx: economic policy implications)," Moneta e Credito, Economia civile, vol. 68(269), pages 81-147.
    18. Louis-Philippe Rochon & Guillaume Vallet, 2022. "The institutions of the people, by the people and for the people? Addressing central banks' power and social responsibility in a democracy," PSL Quarterly Review, Economia civile, vol. 75(301), pages 83-102.
    19. Schoder, Christian, 2020. "A Keynesian Dynamic Stochastic Disequilibrium model for business cycle analysis," Economic Modelling, Elsevier, vol. 86(C), pages 117-132.
    20. Mark Setterfield & Yun K. Kim, 2017. "Household borrowing and the possibility of 'consumption-driven, profit-led growth'," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(1), pages 43-60, January.
    21. Christos Pierros, 2021. "Assessing the internal devaluation policy implemented in Greece in an empirical stock‐flow consistent model," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 905-943, November.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:psl:pslqrr:2023:35. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Carlo D'Ippoliti (email available below). General contact details of provider: http://www.economiacivile.it .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.