Executive summary:

  • Up until 2019, global disinflation pushed down corporate investment.
  • However, since 2020, the return of inflation has failed to reverse the trend.
  • This is paradoxical because corporates never had it so good in terms of net profit margins, return on capital employed, cost of funding and effective taxation of profits.
  • Instead, CAPEX has been dwarfed by cash accumulation, share buybacks and dividends.Alongside sticky long-term inflation expectations, increasing concentration (market power) and subjective factors are the most plausible explanations for the weakness of investment.
  • Should this weakness persist, it could backfire on inflation.