In recent years, it has been increasingly argued that the current inflation is more likely to be caused by corporate greed or the ability of their firms to simply raise prices. This is how the term greedflation was born. Invited to the show, Bohdan Chiritsoyu, the head of the Competition Council, admitted that “there is an opinion that some companies are using this unstable climate for unjustified price increases.”

One of the minutes of the meetings of the Board of the BNR talks about “the gradual transfer to prices of increased material and salary costs and the restoration or increase of some profit rates, in the context of the stability of consumer demand.” A team of economists from the National Bank of Ukraine carefully reviewed the financial data of companies and analyzed whether and in which areas we experienced “greed inflation”.

In recent years, a series of shocks of unusual magnitude led to strong fluctuations in the cost of production of goods and services in the economy, which was even more reflected in the level of inflation, BNR reports.

Thus, broad swings in energy prices and materials quotes, first to the upside and then to the opposite direction, put CPI inflation on a strong upward trajectory starting in mid-2021, peaking by the end of next year. and subsequently following a downward trend on a relatively similar slope. These variations in production costs and final prices have sparked debates about the evolution of companies’ profits.

The discussion was focused on the extent to which the accelerated rates of price growth corresponded to the trends of the cost plan or left the possibility for upward adjustment of profits, according to the analysis of the National Bank.

BNR economists looked at an indicator often used in the literature to assess the profitability of companies – the profit share, which is defined as the ratio between profit and gross value added. The ratio measures how a company’s income is distributed between employees and shareholders.

Profit share is generally an accessible and relatively easy to calculate indicator both at the macro level, based on national accounts data, and at the micro level, using company balance sheets as a source. An additional step in the analysis of the evolution of profitability of companies is the margin, which is defined as the ratio between price and marginal costs and is placed by economic theory at the epicenter of the production decision. This indicator measures the actual profit received by the firm from the sale of the product above the cost of its production.

In addition, it is planned to study the evolution of the profit share of business entities in 2022, as well as in the three previous years. Between 300,000 and 400,000 companies were sampled each year, including those reporting net positive turnover, headcount and expenses in two consecutive balance sheets, so that the percentage figures could be calculated.

In terms of representativeness, their turnover in 2021 is about 340 billion euros, which provides a coverage of about 85 percent.

the results

In 2021, just over 53 percent of companies increased their profit share, while just under 47 percent decreased it.

However, a large proportion of companies that increased their profit share during that time were found in the agriculture and energyand also in HoReCa, a sector of the economy that was recovering after a severe reduction in activity in the previous year.

In 2022, there is also generally high symmetry at the level of economic sectors – in all types of activities, the percentages were generally between 45 and 55 percent on both sides.

In trade and agriculture, companies that have reduced their share of profit predominate, and in the construction sector, the opposite is true.

The largest share of enterprises whose profit share has increased is in the production of paper and paper products, the hydrocarbon processing industry, and the electrical equipment industry.

In the mirror, companies that reduced their profit share in 2022 are dominated by metallurgy, IT and electronics, and the automotive industry, sectors that suffered that year due to higher prices or insufficient production resources.

Aggregation at the sector level highlights the fact that, in most cases, the share of profit remained the same in 2021-2022, with notable exceptions including the IT&C components sector, as well as the energy sector (the latter saw a jump in profitability and in 2021, with the start of growth in profile quotations).

A high frequency of companies for which the profit share has decreased can be found in agriculture, HoReCa, the financial sector, trade or energy.

Across the manufacturing sector, the profit share was reduced in about 56 percent of companies; they dominate the woodworking, metallurgical, building materials, and furniture industries.

Among the few activities dominated by companies with an increase in profit share in the first half of 2023 are construction and food industry.