Business activity has regained strength in 2021 and in the first three quarters of 2022, a period in which companies have achieved record advances in their turnover (+48.7%) driven by inflation, and in their gross value added (VAB), which has grown by 21.1%. These are data that come from the quarterly statistics of the central balance sheet (CBT) published this Thursday by the Bank of Spain, whose report also shows that, although in general companies have not been able to pass on the increase in energy and production costs to their customers, those of some specific sectors: refining, power generation, trade and hospitality.
The report tries to answer two questions linked to the current context of exceptional inflation: to what extent are companies being able to transfer the increase in production costs to sales prices? And to what extent is the improvement in gross added value being distributed between the ownership of the company and its workers?
Are costs being transferred to prices?
To answer the first question, the report studies the evolution of the so-called “sales margin” (gross economic result divided by turnover), to “analyze to what extent companies have been able to transfer the increase in costs means of production at selling prices.
The answer to this question is that, in general, companies have not transferred all the increase in costs borne to prices. “Companies have lost income in real terms,” summarizes the Director General of Economy and Statistics of the Bank of Spain, Ángel Gavilán. However, this answer does not work for all sectors. The report points to the refining sector of the oil companies as the one that has managed to transfer the increase in costs with greater fidelity to its prices. It also points to the electricity generation sector (no, to the marketers). In addition, the commerce and hospitality sectors would also be managing to transfer the increase in energy costs to prices, “in a context of strong recovery in demand after the lifting of restrictions linked to the pandemic,” the report says.
Just as the answer to this first question is heterogeneous depending on the sector, it is also heterogeneous within each of them. The report from the central balance sheet identifies that, in general, the most vulnerable companies, in the worst financial situation, are the ones that are transferring their costs to prices to a greater extent. However, the exporting companies, the ones that have been accumulating a higher business margin in recent years and the ones that bear the greatest weight in their energy and oil costs, are the businesses that are bearing the most the rise in prices against their profit margins. .
In colloquial language, this triple trend in companies could be summed up in three expressions: “in order to survive, I have to raise prices and increase margins”; “I cannot raise prices because I lose competitiveness” or “Yes I can, because I have accumulated a cushion of benefits in recent years”.
How is the benefit being distributed between the company and the workers?
To answer this question, the Bank of Spain starts from a second indicator, which it calls “margin on gross added value”, which calculates the ratio between the gross economic result of the company and the GVA.
So far in 2022, the growth of the gross economic result of companies has grown by 38.5%, well above the 6.9% increase in personnel expenses (which breaks down into an increase of 3.6 % of the workforce and an increase in average remuneration of 3.2%). This means that in 2022, the distribution of the best results of companies has tilted in favor of business profit, explains the general director of Economy and Statistics of the Bank of Spain. “To a disproportionate level?” Gavilanes wonders. And he answers: “No, up to 2019 levels.”