Eurozone | Firms’ margins won’t furnish long-lasting lift to inflation

Profitability has staged an impressive recovery, but the rise in Q1 operating margins to a 12-year high materially overstates corporate health. Excluding direct transfers to firms, operating margins remain below their weak 2019 average.
What you will learn:

• Gradual withdrawal of fiscal support is bound to offset part of the profitability boost from the expected added recovery in demand near term.
• Labour costs should remain well under control, though. Widely used furlough schemes have cut firms’ wage bills. But underlying pay growth also slowed to new lows during the pandemic.
• Soaring commodity prices and global supply shortages have boosted non-wage costs, especially for durable-goods producers. But we continue to think that once bottlenecks ease, input prices will soften quickly.