Higher labor costs had more impact on inflation than corporate profits | Economy

Last year there was a lot of discussion about whether wages should rise rapidly. With a higher wage, employees can better cope with price increases. But to pay those wages, companies may have to raise their prices even further, researchers from De Nederlandsche Bank (DNB) emphasize.

At the same time, some companies also achieved high profits during the time of high inflation. It seemed as if they took advantage of inflation and increased their prices and margins.

DNB investigated which development contributed most to the high inflation. According to central bank researchers, this is due to the increase in wage costs. 3.9 percentage points of inflation in 2023 was due to higher wage costs. Corporate profits contributed 1 percentage point to this.

According to the researchers, this outcome is not surprising, “because wages will rise sharply in 2023.” They point to the high wage demands of unions, which insisted on compensation for the very high inflation at the end of 2022.

In previous years, wage costs contributed much less to inflation, the DNB study shows. In 2021, wages even had a negative effect on inflation. Then prices rose mainly due to companies’ profit growth.