In the midst of the debate on whether second-round inflation is caused by the increase in wages or benefits, yesterday the Bank of Spain reported growth in the ordinary result of non-financial companies of 68.1% in the first quarter , while salaries increased by 5.9%. These are data from the Central Balance Sheet of the Bank of Spain, which are based on a sample of more than 800,000 companies. The IMF, for its part, assured that almost half of inflation in Europe (45%) is due to the rise in corporate profits, compared to 25% of wages.
The director of conjuncture of Funcas, Raymond Torres, explained that the figures from the Bank of Spain coincide with the national accounting data from the INE, which showed an increase in the gross surplus (business profits) compared to remuneration (salaries) in the first quarter. The growth of the net result published yesterday is slightly higher than that of the same period of the previous year: 64.8%. Torres adds that the most important thing about statistics is that it allows segmenting by sectors. Companies in the energy area improved their results by 140.8%, while in industry they fell by 30.8%. Outside of these two sectors there is great heterogeneity, Torres said. For example, in the first three months of 2023, more than half of non-financial companies (54.6%) increased their net ordinary profit. But, instead, there was 44.6% who earned less than the previous year.
CEOE sources considered "positive that companies continue their process of normalizing results, but there is still a long way to go as we have not yet recovered the levels of profitability prior to the pandemic in terms of margins on turnover." The same sources added that "we are concerned that already in the first quarter more than 44% of the companies have seen their results deteriorate."
From the employment side, the document published by the Bank of Spain reports that non-financial companies increased the number of workers by 2.2% compared to 4.2% a year earlier. Meanwhile, average remunerations rose the aforementioned 5.9%, compared to 2.1% in the first quarter of 2022.
Who has contributed the most to the rise in inflation? Torres replies that, based on the data published yesterday, benefits contributed more to the increase than wages. Fernando Luján, UGT confederal secretary, adds that "second-round inflation can only be attributed to the greed of businessmen."
According to the IMF, the increase in corporate profits explains almost half of the increase in inflation in Europe (45%) in the last two years, as companies raised prices more than the costs of imported energy. This is the result of a study by the International Monetary Fund (IMF) entitled Euro Area Inflation alter the Pandemic and Energy Shock that was released yesterday. According to the document, labor costs only accounted for 25% of the increase in inflation.
"In other words, until now European companies have been more protected than workers from the adverse impact of costs," the authors argue. “Profits (adjusted for inflation) were around 1% above their pre-pandemic level in the first quarter of this year. Meanwhile, compensation of employees (also adjusted) was around 2% below the previous trend”.
For the IMF, this delay in wage increases "makes sense: wages take longer than prices to react to shocks." This is partly because salary negotiations are held infrequently. The key question is how fast wages will rise and whether firms will absorb the higher wage costs without increasing prices further. Fund technicians try to provide an answer to the question. Assuming nominal wages rise at a rate of around 4.5% over the next two years and labor productivity remains broadly flat, firms' share of profits would have to fall back to pre-pandemic levels. for inflation to reach the ECB's mid-2025 target of 2%. In other words, for inflation to slow down and return to an acceptable rate, companies should be more prudent than they have been in recent years when it comes to setting prices.
Regarding the net turnover of companies, the Bank of Spain statistics reflect that its level remained stable in the first quarter of 2023, with a growth of 0.7% compared to 43.8% in 2022. From For its part, the asset profitability ratio stood at 3.7% in the first quarter of 2023, compared to 2.2% in 2022, reaching levels slightly higher than those registered in the first quarter of 2019 (3.1 %), period prior to the pandemic.
