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