Piraeus Bank: How much did the price hikes in energy and food gnaw at revenues?

Leonidas Stergiou

According to an analysis by Piraeus Bank, households with a monthly family income of € 751 – € 1,100 spend 27.1% and 13.6% of their income on food and energy respectively. In contrast, households with incomes above € 3,500 spend only 18.7% and 10.5% of their income on the same categories of goods. Therefore, the percentage of expenditure of “poor” households for all other goods and services is 59% – 63% while that of the rich at 70.8%.

It is these discrepancies in consumption patterns that are the cause of the different levels of inflation experienced by households with different incomes – especially at a time when inflation is largely due to energy and agricultural prices. Thus, from the different weights that have the prices of energy, food, etc. at each household’s expense there is different inflation, with exactly the same prices of goods and services.

The Financial Analysis and Investment Strategy Department of Piraeus Bank estimated that in very poor incomes goods and energy services are inflated by 55.5% on an annual basis while in the very affluent by 48.2%. In contrast, other goods and services in poor households increased by 1.4% and in affluent households by 2.1%. Inflation for households with a monthly income of up to € 750 had already reached the level of 10.6%, for households with an income of € 751 – € 1,100 to 11.1% while for more affluent households with incomes of € 2,800 – € 3,500 it is limited to 9.5% and in households with an income over € 3,500 at 8.5%.

Therefore, in the current situation, lower income households experience higher levels of inflation, which decrease as the income scale increases.

The increase in energy and food prices reduces by 8.2% the disposable income of households to all their other consumer needs at the lower end of the income distribution but only 5.7% at the upper end of the more affluent households.

Impact on business profitability

To approach the effect of the external increase of energy prices on the profitability of Greek companies, Piraeus Bank economists drew information from the past, comparing two periods with a large change in energy prices. They compared, therefore, the operating profit margin of the main sectors of the Greek economy in 2008 in relation to the average operating profit of the same sectors in the previous three years 2005-2007. We use the three-year average in order to avoid the influence of random factors that may affect the profitability of each industry in a given year.

The results show that, while overall profitability fell marginally by 0.7%, there were a significant number of industries and even very energy-intensive ones, such as oil refining and air transport, which benefited from rising energy prices. These industries were admittedly able to defend their profit margins by “passing on” the increases to their buying public. At the same time, there were sectors such as real estate, administrative and support services and catering, which benefited from the general inflationary environment created in the wider economy. On the other hand, there were, of course, sectors such as electricity generation, construction, off-air transport, metallurgy and the pharmaceutical industry, which were unable to pass on price increases to their customers and final consumers, resulting in a decrease. of their profitability up to double digits.

Finally, the energy sector needs special mention. The prevailing institutional and business conditions have changed significantly compared to the period 2005-2008. Natural gas now has a higher penetration of the energy mixture than lignite, as a “bridge” fuel for the green energy transition and the degree of energy The country’s dependence on foreign countries has increased. All of the above exacerbates the uncertainty about the direction of the inflationary impact on the industry’s profit margin, which may not be affected to the same degree as in the past.