ECB Official Warns of Risks of High Profit Margins on Inflation – Economics Bitcoin News


Fabio Panetta, a member of the executive board of the European Central Bank (ECB), has suggested that the increasing profit margins of companies could be contributing to higher inflation levels. In an interview with the New York Times, Panetta warned of the possible long-term effects of growing margins.

ECB Representative Observes Impact of Profit Margins on Prices

Fabio Panetta, a member of the executive board of the European Central Bank (ECB) and former deputy governor of the Bank of Italy, recently expressed his opinion on the effect that the rising profit margins of businesses may have on inflation levels. In a conversation with the New York Times on March 31, Panetta mentioned the current situation in the economy and the opportunities that companies have to increase their prices and their profits.

The current economic environment might lead to firms increasing their margins if their expenses start to rise, according to Panetta. He commented:

“We are probably paying insufficient attention to the other component of income — that is, profits. The situation which prevails in the economy, there could be ideal conditions for firms to increase their prices and profits.”

Nevertheless, Panetta clarified that he was not implying that the European bloc would take action to regulate such prices. Instead, he insisted on the importance of understanding all the elements that are affecting inflation.

Inflation Eases, But Still Far From Target

Recent data from the European Union indicates that the inflation rate decreased to 6.9% in March, after reaching 8.5% in February. This was mainly due to the fall in energy prices experienced in Europe. However, the prices of the core elements of European inflation, which excludes energy and food, continued to rise and hit a record high of 5.7% during the same month.

ECB Member Fabio Panetta Claims Rising Profit Margins Could Be Fueling Inflation
Inflation and its main components in Europe. Source: Eurostat.

As a result, the ECB will probably continue to raise interest rates, as it follows the data-dependent approach supported by Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics. He commented:

Policymakers at the ECB won’t read too much into the drop in headline inflation in March and will be more concerned that the core rate hit a new record high.

On March 16, the ECB raised interest rates by 0.5%, with President Christine Lagarde affirming that inflation was “projected to remain too high for too long,” with levels still being far from the institution’s 2% goal.

What do you make of Fabio Panetta’s take on the effect of profit margins on inflation? Share your thoughts in the comment section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

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