On paper, Europe’s inflation crisis is easing. Rates have dropped from double-digit highs in 2022, and the Organisation for Economic Co-operation and Development (OECD) said in May that inflation was “falling faster than initially projected and private sector confidence is improving”.
Yet for the European public, inflation’s impact remains very real. "I used to buy feta for €7-8 per kilo, now it's €14. Of course, I don't buy it at that price, I hunt for special offers and go to several supermarkets every week," says Maria, 63, who works as a cleaner in Athens. She says many Greeks have changed their shopping habits because of high inflation and now must shop around the city searching for bargains.
On the other side of Europe, Frédéric, who lives near Paris, is also hit by high prices. “It’s quite simple, my gas and electricity bills have clearly risen by an easy 35 percent”. The French accountant has started keeping track of his expenses in a spreadsheet to see where his money is going, and he sees that food and utilities have jumped the most.
The situation in the middle of the continent is even worse. "People are buying spectacularly less and yet paying more. Many people are nervous and tense when they have to pay, some even swear," said Réka, a supermarket cashier in Budapest. No wonder, Hungary has the highest food inflation in Europe, with prices almost doubling since 2020.
Annual inflation across the EU reached a record-high of 11.5 percent in October 2022 (the European Central Bank sets a two percent target). Spiralling prices were triggered by the fallout from the Covid pandemic, the destabilising impact of Russia’s invasion of Ukraine and flawed national policy-making. What’s more, many prices have spiked further due to unchecked corporate ‘greedflation’ tactics.
It is of little surprise then that poverty and the cost of living crisis are priorities for voters in June’s European elections, according to a Eurobarometer survey. Millions remain gripped by concerns about housing, jobs and daily expenses and far-right parties are among those targeting such fears on the campaign trail.
Jordan Bardella, candidate for France's far-right National Rally [Rassemblement National], has said purchasing power is "one of the great untreated anguishes" of citizens. "Inflation is a wall in front of which millions of French people ... can no longer cope.”
After the Russian invasion, inflation was mainly fuelled by soaring energy costs, but by early 2023 Europe had adapted to its new energy supply. Food prices had become the main cause of inflation.
And now we have reached the point where the rise in the cost of services is the leading cause. As András, a hairdresser in Budapest, puts it: "The landlord raised the salon rent at the beginning of the year with the official inflation figure, so that's why I'm raising the price."
Not surprisingly, countries more dependent on Russian gas have seen the biggest increases in energy prices in recent years. At the same time, wages have not risen at a similar rate.
Only Belgium (2.9 percent) — where wages are fully indexed on inflation — and the Netherlands (0.4 percent) saw real hourly wages rise between the first quarters of 2022 and 2023. The fall in real wages ranged from 0.8 percent in Luxembourg to 15.6 percent in Hungary.
There are many reasons for this. A significant one is the lack of coverage of workers by collective agreements, according to Nicolas Schmit, EU commissioner for jobs and social rights. A recently adopted European directive sets a non-binding target of 80 percent coverage.
Schmit, who is running for the EU Commission presidency in June as the lead candidate for the Socialists & Democrats (S&D), believes that wage indexation, as in Belgium and Luxembourg, could be a solution but it has its limits.
In January 2023, Spain reduced VAT on staple foods from four percent to zero in an attempt to address its inflation crisis. This was a move that several governments have tried to do, including the Polish, Italian and Portuguese.
Another common measure to combat food inflation was the introduction of price caps, which Hungary took advantage of. Not with much success, because the supermarkets recouped the lost profits on artificially low-priced products by mark-ups on other products.
The Greek government found a third way. On supermarket prices, one of the most successful measures against inflation was the three-month ban on sales promotion of goods that recently had a price hike. Companies renounced price increases out of fear that they would lose market share.
With gas and oil prices spiralling out of control, almost all governments have also regulated fuel prices: sometimes with price caps (Hungary again), sometimes with rebates (Germany, Spain), and sometimes with VAT cuts (Italy, Poland).
While keeping fuel prices under control has helped both households and companies, subsidising energy prices has essentially only affected households, with full prices in place above a certain consumption. For businesses and entrepreneurs in need of large amounts of energy, this has been the biggest problem and has fuelled inflation. On the other hand, it left the most money in people's pockets, but it really cost governments a lot.
Inflation always hits the poorest hardest. Portugal and Italy have offered one-off subsidies to help the least well off, but they are in the minority.
The bleak reality is illustrated by how many people are now unable to heat their homes. Since 2021, the picture has worsened dramatically in most of Europe. In Spain and Greece one in five people cannot meet their basic utility needs.
“The other problem you have in Greece and in the European Union is that inflation is higher for those who have lower incomes,” says Greek MEP Georgios Kyrtsos. “Because they spend all their money on housing, energy and food."
But the last two years were not bad for everyone. Many corporations and their shareholders thrived. France’s top companies, comprising the CAC 40 index, celebrated a record-breaking year in 2023, with combined profits of €153.6bn.
According to the European Trade Union Confederation (ETUC), profit share increased across the EU by four percent since the start of the Covid pandemic. Dividend payments to shareholders rose up to 13 times faster than wages.
This can be partly explained by a blind spot in the measures deployed to combat inflation, namely the fight against ‘greedflation’, where companies exploit inflation to justify exorbitant price hikes, prioritising profit over consumer welfare. It can occur when companies anticipate increased production costs, and so they artificially raise consumer prices. Or when higher retail prices remain in place even if production costs come down again.
Already last June, European Central Bank president Christine Lagarde sounded the alarm. She emphasised how certain sectors had capitalised on supply-demand imbalances and volatile inflation to boost profits. She pointed to the agriculture, construction and service industries for potential unjustified price increases, urging competition authorities to scrutinise the practices.
In the eurozone, recent inflation largely stems from higher profits and import prices. Profits contributed to 45 percent of price hikes since early 2022, according to a briefing last June by the International Monetary Fund. “Europe’s businesses have so far been shielded more than workers from the adverse cost shock,” the authors assessed.
Greedflation is much stronger than wage-induced inflation, says French economist Jézabel Couppey-Soubeyran, for whom this phenomenon is also due to market concentration, which is an underlying trend, particularly in the energy, food, as in banking sectors. "What we have seen in recent years is companies, particularly in the retail sector, passing on price rises in their selling prices. It's this problem that we need to take into account and try to limit. Member states have not really got to grips with the problem."
French president Emmanuel Macron last year attacked the "cynicism" of those "who make such exceptional income that they end up using this money to buy back their own shares". He promised to implement a tax so that “workers can benefit” from the outsized returns.
Greek prime minister Kyriakos Mitsotakis also denounced ‘greedflation’, telling companies that Greece "is not a banana republic".
But concrete action has rarely followed, and monitoring mechanisms are still inadequate.
Investigate Europe analysis of national policies found no clear steps taken to curb the phenomenon, except in the energy sector.
Back in 2022, the EU adopted an emergency regulation to address high energy prices, setting a mandatory temporary solidarity contribution on the surplus of fossil fuel businesses. But this ended in December 2023.
The contribution of profit to inflation "had gone a little bit missing," the ECB president lamented to European parliamentarians. The reason, she said, is simple: "We don't have as much and as good data on profit as we do on wages.”
There is no shared acceptance among political players that greedflation has strongly impacted everyone, says Ester Lynch, general secretary of the ETUC.
“I think the political persuasion and who governments listen to may explain this governmental lack of appetite to act against excess profits,” she says. "There wasn't that same acceptance that, by driving up prices, profit increases affected everybody. On the workers’ side, we were adamant and pushing but there wasn't the same sense of urgency from governments."
For his part, Schmit cautions against oversimplifying the issue. But he thinks corporations should pay their fair share and pay taxes on super profits to invest in the green transition and defence industries: “We are talking about thousands of billions of euros if we take the figures for the next 10 years.”
Currently, there's a positive outlook: inflation has tapered off to around two percent from its 2022 high, largely due to declines in energy and food prices.
“The impact of tighter monetary conditions continues ... but global activity is proving relatively resilient, inflation is falling faster than initially projected and private sector confidence is improving," an OECD report released in May assessed. However, profits need to fall further if inflation is to remain around the two percent target, the European Central Bank said in an April analysis.
But another storm will come. Economist Jézabel Couppey-Soubeyran suggests that while inflation appears to be stabilising, it is premature to declare it over. "If we don't fight against the structural part, namely against climate change and fossil fuel phase-out, we're going to remain exposed to price volatility," she says.
The European Parliament in December voted on whether to support a temporary crisis solidarity tax on "undue and excessive profits".
The resolution narrowly failed — 282 votes in favour and 300 against. Opposition came mostly from conservatives and the far-right — the same parties tipped for major gains in June’s elections.
This article has been co-published with Investigative Europe
Pascal Hansens and Attila Kálmán are journalists with Investigate Europe
Pascal Hansens and Attila Kálmán are journalists with Investigate Europe