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05 April 2023

Profit-price spirals are driving inflation and increasing inequality

The cost-of-living crisis is hitting workers hard. Wages are having a hard even impossible time in trying to catch up with inflation. Real wages are falling across all OECD countries. Hiding behind the cost-of-living crisis is a deeper story. It is the story of businesses using shocks in energy and ...

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The cost-of-living crisis is hitting workers hard. Wages are having a hard even impossible time in trying to catch up with inflation. Real wages are falling across all OECD countries.

Hiding behind the cost-of-living crisis is a deeper story. It is the story of businesses using shocks in energy and commodity prices as an opportunity to boost profits.  Knowing that competitors are in a position to grasp the same opportunity, businesses have not simply passed on more expensive input costs into higher prices for their products and services. On top of that they have charged extra price hikes to increase profit margins and capture a larger share of the total revenues created by the economy. In fact, the share of profits in total added value is currently at record highs.

The evidence of businesses abusing the crisis to expand profits is overwhelming. It is documented in trade union research, among others by UNITE and the Economic Policy Institute.

But it’s not only trade unions or their research institutes who  are pointing to the fact that  a “profit-price”, not a “wage-price” spiral  is happening.  Research from the business sector itself is confirming that inflation is being driven by  profits spiraling out of control (Natixis, Unicredit). Even central banks, usually the guardians of financial capital, are noticing “the elephant in the room” ( ECB, ECB2 and Federal Reserve).

 

 

 

“In last years’ Employment Outlook, the OECD called upon OECD governments to provide a new impetus  to collective bargaining and support efforts of unions (and employers) to expand membership and enlarge bargaining coverage. With the evidence accumulating that profits are driving inflation, the OECD  needs to step up on this call to ensure workers are in a better bargaining position to negotiate wage increases that keep up with inflation”.

— Ronald Janssen, Senior Economist at TUAC

Using energy and commodities’ price shocks as a cover to distribute purchasing power from wages to profits is unfair and will amplify existing and high (too high) inequalities.

The OECD needs to expose ongoing profit- price spirals and the  impact they have on inequalities and social cohesion. The OECD also needs to step up its call to ensure workers are in a better bargaining position to negotiate wage increases that keep up with inflation.