Profits in a time of inflation: what do company accounts say in the UK and euro area?

Gabija Zemaityte and Danny Walker

Inflation has been high in many countries since 2021. Some have said that companies have increased their profits over that period: so-called ‘greedflation’. We use published company accounts for thousands of large listed companies to look for signs of increased profits in the data. Consistent with previous analysis of aggregate incomes, price indices and business surveys, we find no evidence of a rise in overall profits in the UK – prices have gone up alongside wages, salaries and other input costs. Companies in the euro area are in a similar position. However, companies in the oil, gas and mining sectors have bucked the trend, and there is lots of variation within sectors too – some companies have been much more profitable than others.

Recent analysis by Sophie Piton, Ivan Yotzov and Ed Manuel has shown that corporate profits have been relatively stable in the UK and that profits are unlikely to have been a big contributor to inflation. Others have suggested that the trend in the euro area has been somewhat different. In this post we use a novel data source to look at this question: the information companies have reported in their accounts.

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Profits in a time of inflation: some insights from recent and past energy shocks in the UK

Sophie Piton, Ivan Yotzov and Ed Manuel

How have profits behaved in this context of sustained level of inflation? In part, the answer depends on how ‘profits’ are defined. Some broad measures suggest increasing profits, but conflate market and non-market sector dynamics and omit important corporate costs. We construct an alternative measure of corporate profits to capture UK firm earnings in excess of all production costs. This measure has been declining since the start of 2022, consistent with evidence from historical energy shocks. This decline has not been uniform across firms, however: firms with higher market power have been better able to increase their margins; others have experienced large declines.

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The whys and wherefores of short-time work: evidence from 20 countries

Reamonn Lydon, Thomas Mathae and Stephen Millard

Short-time work (STW) schemes are an important fiscal stabiliser in many countries. In the Great Recession, 25 out of 33 OECD countries used short-time work schemes (Balleer et al. 2016). STW schemes aim to preserve employment in firms temporarily experiencing weak demand. This is achieved by providing subsidies to firms to reduce number of hours worked by each employee, instead of reducing the number of workers. As well as being paid for actual hours worked, the subsidy is used to pay workers for hours not worked – albeit not completely compensating the loss of income due to reduced hours. In most countries, the bulk of the subsidy is paid by the state, although companies can also contribute.

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