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The fact that purchasing has become more expensive could be due to high margins on the part of some corporations.

Photo: PHILIPPE HUGUEN/ AFP

Prices in Germany have risen and one reason for this could be the lavish profits of some companies. This is the conclusion reached by a research group from the Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation. In addition to the energy crisis and the Ukraine war, the so-called "profit inflation" is one reason for the significant price increase in Germany.

According to the report, companies in some sectors have recorded "strikingly strong increases in profits". Compared to 2019, profits here skyrocketed by almost 50 to almost 100 percent at their peak.

The increased prices are noticeable everywhere. But companies in some sectors of the economy seem to be driving them. The increase in nominal unit profits in four sectors of the economy is striking: construction, trade, transport and hospitality, manufacturing and manufacturing – including energy production – and agriculture. In the first two areas in particular, profits grew more strongly than in other European countries. Wages, however, hardly rose. For this reason, the researchers speak of "inflation induced by an increase in profits".

In other sectors, such as large parts of industry, profit margins rose only moderately, according to the study. Nevertheless, nominal unit profits for the economy as a whole at the end of the second quarter of 2023 were almost 25 percent higher than in 2019.

It is unclear why some companies have been able to make such high profits. There is still too little data, it said. The researchers pursued three theses.

  • The first is based on increased demand in the market. In other words, consumers would have demanded products so much in the short term that the "normal" pricing mechanism would result in significantly higher prices. This thesis is contradicted by the development of demand in the economic sectors that are particularly characterized by profit increases, the study authors write.

  • It seems more likely that companies will give price increases to customers more quickly than price reductions. However, this so-called "asymmetric pricing" can only explain part of the development. Even before the price explosion during the 2022 energy crisis, excess profits were apparent.

  • The third and empirically best proven thesis assumes an "implicitly coordinated price increase". So, companies expect customers to brace themselves for increased prices during inflation. As a result, they deliberately set the prices for their products high and bet that customers will buy anyway – this drives up margins. According to the researchers, particularly influential companies could have exploited this strategy.

In their analysis, the researchers include data from Germany and other EU countries as well as the global economic situation at the time of the 2008 financial crisis. In general, the necessary data is still lacking for an in-depth analysis, the researchers write. Her conclusion: ""Profit inflation" is a reality, even if it seems to be slowly weakening. How it comes about cannot yet be satisfactorily explained."

lpz/AFP