European companies overreacted on inflation risks


Inflation would have been less extreme last year if companies had not increased the prices of their products further than necessary. This is shown by research by the economic Office of Rabobank into surreptitiously driving up prices in times of crisis.

The bank’s economists calculated that consumer products would have risen 2.2 percent less last year if prices had only been raised to what was necessary due to rising costs. Companies made a lot more profit last year, but consumers declined in purchasing power,

In recent months, this has led to major strikes for more wages, such as this week in the distribution centers of Albert Heijn.

Nevertheless, the Rabo economists do not dare to state that companies deliberately filled their pockets last year. That 2.2 percent is certainly not negligible, especially not at an inflation rate of around 11 percent for consumer prices, Companies may also have pre-sorted on higher wages. Many collective agreements were not concluded last year.

It is also unclear whether scarcity played a role in driving up prices. You can’t see this apart from the overheated economy. Suppose a company raises prices less, then consumers can buy more products. But due to the shortage of raw materials and personnel, the company might not be able to meet the demand. It inevitably leads to scarcity and thus higher prices.

Rabobank therefore speaks of a “purely hypothetical” calculation exercise, intended to indicate the order of magnitude of the securities found.

By: Nicholas de Kramer

Nicholas de Krammer, а self-taught economic analytic with heave mathematical background. Math behind the economics (and economics behind math) is the strong side of the author. Contact him at

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