In the wake of the Russian invasion of Ukraine and a spike in energy prices, inflation in the eurozone rose, to peak at 10.6 percent in October 2022. Since then, the rise in prices has slowed to 6.1 percent in May , but that level still remains well above the European Central Bank’s target of two percent.
According to the IMF, this high inflation is mainly a reflection of the increase in corporate profits (which have raised their selling prices more than necessary to compensate for the increase in their costs) and an increase in import prices.
The IMF states that the rise in corporate profits was responsible for 45 percent of inflation. “European companies have so far been better protected from the adverse cost shock than workers,” the IMF said.
Corporate profits (adjusted for inflation) were about 1 percent above pre-coronavirus levels in the first quarter of this year, according to the IMF. By contrast, employee compensation (also adjusted for inflation) was about 2 percent lower.