Inflation: For Many, It Was a Mother, Not a Stepmother

And who then has fourteen girls? – once wondered a man from Banja Luka faced with the (albeit mythical) data that in his city there are seven women for every man. Who has taken his seven? This anecdote, which further fuels the myth of Banja Luka as a city where the number of women far exceeds the number of men, vividly illustrates the saying that a gain for one person means a loss for another.

The same is true in inflation: every price increase that someone pays for another is a gain. Who then has profited and have some economic sectors been more successful in this? To whom has inflation been a mother, and to whom a stepmother?

In the first wave of price increases, the finger was most often pointed at the energy sector, which was accused of making excess profits, but rising interest rates soon gave rise to new winners in the inflationary environment – banks.

Zagrebačka banka reported a profit of 217 million euros in the first half of the year, which is 79.3 percent higher than in the same period last year, while Privredna banka Zagreb achieved an even more impressive 250 million euros in net profit in the first part of the year, three times more than last year in the same period, when it had only 82 million euros in profit. The cause of such a high profitability growth should, of course, be sought in the increase in income from interest margins.

Lost Only Consumers

However, inflation seems to have favored some other sectors as well. The owner of Kontera, Nikola Nikšić, analyzed the revenues and profits of the sector over a five-year period and came to interesting data.

– Besides banking and the supply of electricity and other energy sources, whose revenues and profits soared in 2021 and 2022, business entities from three more economic sectors significantly increased during the five-year period: construction, agriculture, and manufacturing. Companies in the construction sector achieved an average annual revenue growth of 11.7 percent from 2018 to 2022, and in 2022, compared to 2021, a growth of 16.7 percent. With continuous revenue growth, including growth in 2020, the pandemic year, in 2022 they doubled their net profit, from 485.1 million euros compared to 236 million euros in 2018, or increased it by 20.8 percent compared to 2021. The net profit margin in that sector for 2022 was 4.4 percent, which is 0.2 percentage points higher than in 2021 and 1.4 percentage points higher than the three percent average value for five years – Nikšić presented the data.

Above-average revenue and profit growth was also achieved last year by the agriculture, hunting, and forestry sector. While its revenues grew at a rate of 12.2 percent over the five-year period, last year they increased by 23.5 percent compared to 2021 (from 4.69 billion euros to 3.8 billion). Additionally, the sector quintupled its net profit in 2022 (245.2 million euros) compared to 2018 (51.1 million euros), or increased it by 70.7 percent (101.5 million euros compared to 2021). The net profit margin for 2022 was 5.2 percent, which is a significant 1.4 percentage points higher than the 3.8 percent from 2021.

Products We Cannot Do Without

– The manufacturing industry increased its revenues by 24.8 percent last year compared to 2021, and over the five-year period, it grew on average by 10.3 percent annually. With continuous revenue growth, including a pause in 2020, the pandemic year, in 2022 they more than doubled their net profit compared to 2018. The profit growth, however, was modest, at 1.9 percent compared to 2021, while the net profit margin decreased from 5.6 percent in 2021 to 4.6 in 2022 – Nikšić noted, adding that when looking at the data from other sectors according to NKD, which is also economically logical, it can be easily concluded that the only real and significant ‘losers’ of high inflation are the end consumers.

The aforementioned sectors, along with mining, dominate inflationary profits worldwide. A Canadian study showed that of every dollar spent on higher prices in the last two years, 47 cents were converted into corporate profits in just four industries. Of every additional dollar spent on inflation in Canada, 25 cents went to profits in mining and oil and gas extraction, nine cents to profits in manufacturing, seven cents to profits in the real estate sector, and six cents were claimed by the finance and insurance sector.

What are the trends in Europe and which other sectors are doing well in inflation can be read in the new issue of the printed and digital edition of Lider.