Central bank warns on profit inflation
Stournaras calls for measures that would contain excessive earnings and tax evasion
Addressing the phenomena of “profit inflation” and tax evasion, as well as the acceleration of the absorption of European resources and of course the reduction of public debt, are matters at the forefront of Bank of Greece Governor Yannis Stournaras’ policy proposals in the Interim Monetary Policy Report he presented on Wednesday.
“Businesses should reduce profit margins where possible to avoid the phenomenon of profit inflation,” the report stresses. It even calls on the competent control mechanisms and the Competition Commission to intensify controls in order to avoid the phenomena of profiteering and oligopolistic practices.
At the same time, it points out that salary increases must cover the loss of purchasing power, but without creating a spiral of wage-price increases.
The report cites an ECB study which points out that rising profits have contributed more to inflation than rising labor costs, and this has been particularly pronounced in Greece, among other countries.
According to the report, the profit share of Greek businesses was 33.7% in 2021, 33.2% in 2022, and fell to 28% in the first quarter of 2023, remaining higher than the pre-pandemic level (24.9% in 2019), although average for the 2017-2019 period.
The Bank of Greece has revised its growth forecast for 2023 upward to 2.4%, just like the government, and downward for 2024, to 2.5% (against the government’s 2.9%). In 2025 the rate will be maintained at 2.5% and in 2026 at 2.3%.
Regarding the debt, it points out that the risks to its sustainability remain limited in the medium term; however, in the long term, increased uncertainty is expected, as the exposure to interest rate risk will increase. “It is therefore necessary to exercise responsible fiscal policy,” warns the central banker.
Inflation is forecast to ease to 4.1% this year from 9.3% in 2022, reflecting the large decline in energy commodity prices. By the end of the forecast period, in 2026, inflation will converge toward the ECB’s 2% target.
