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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
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    File URL: https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/18215/17107
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    References listed on IDEAS

    as
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    2. Servaas Storm, 2023. "Profit inflation is real," PSL Quarterly Review, Economia civile, vol. 76(306), pages 243-259.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    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.

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    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

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