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Corporate profits are high, the bill is on the consumer

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NOS News

  • Nina Bogosavac

    editor economics

  • Nina Bogosavac

    editor economics

It is perhaps the most pressing economic question of the moment: who pays the bill for the sky-high energy and raw material prices?

A look at the quarterly figures of a number of large multinationals shows that that account is not with them in any case. Because Shell, Unilever and Heineken, among others, saw profits rise sharply in the past quarter, sometimes to record highs.

Meanwhile, the Central Planning Bureau (CPB) stated in June that while corporate profits have been increasing for a few years, households are dealing with higher energy costs. Conclusion: the distribution of costs and benefits is skewed.

And De Nederlandsche Bank (DNB) calculated last month that the increased energy costs have so far only had a limited impact on company profits. At the same time, consumers who buy their products are facing an inflation of more than 10 percent.

‘Global phenomenon’

Shell is the most extreme case of the above companies. The company benefits directly from prices achieved on the world market. At the bottom of the line, profits in the past three months amounted to 18 billion dollars.

Board chairman Ben van Beurden said he was aware that the profits were “very significant”. He calls the high prices a “global phenomenon” that Shell cannot do much about. Making money does come with a responsibility, he says.

‘Inflation as an excuse’

Top sales and record profits do not necessarily mean that companies are taking advantage of the opportunity to raise prices, says Jasper Lukkezen, economist and editor-in-chief of trade magazine ESB. “But companies do make use of inflation.”

He jokingly calls this the Unilever effect. “What you see with this company – and it is not the only one – is that last quarter more money was made with fewer sold products. That is only possible if the prices are higher than the pure cost increase required.”

It is only logical that companies try to pass on increased costs of energy, raw materials and wages to customers in order to maintain their own margin, says Lukkezen. “And they succeed.”

But according to him, especially large companies use inflation as an excuse and the price increases indicate that they are not afraid that the consumer will turn to the competition. In other words: they dare to raise prices.

“Companies have to contend with cost increases, they calculate that through, logically. But: we are also coming from an economic period with growth, there is simply more demand than supply. Their starting point is favourable.”

Out of sync

Jan Willem Velthuijsen, chief economist at the accountancy and consultancy firm PwC also sees the high demand as the cause of the increased prices.

Another important factor in the glittering company figures is time, says Velthuijsen. “Sales continue for a while and the costs seep into the profit and loss account of companies later. You do not see that in the figures for the past six months.”

That delay is due to the type of cost increases that companies have to contend with. In Europe, the main issue is an increase in energy prices.

“That is something that slows you down in other costs,” says Velthuijsen. “Demand is still high, costs are still relatively low.” He expects that demand will fall in the future, and costs will increase.

Income tax

Lukkezen points to the windfall tax, in English’windfall tax‘: a special tax on windfall benefits for a company for which they did not have to do anything. Something like this has been shot down in the Netherlands because of complexity in the House of Representatives. “But in Italy and the United Kingdom this does happen at energy companies.”

Another option, he says, is to give money, such as the current 800 euros energy surcharge. “You could do that more broadly. But in limiting price increases with a law, I as a government would be careful.”

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