Unequal to inflation. Statistics Canada tells us that average weekly earnings rose 3.4% across Canada — 4.5% in Quebec — in December compared to 2021. All this should be put in the perspective of an increase average annual inflation of 6.8% between the fourth quarters of 2021 and 2022. For businesses? The annual increase in profits hovered around 10% at the end of December.
We know the reality of the oil companies’ superprofits. In ZoneBourse, we can read that inflation by the profits of companies considered as a whole emerged at the beginning of March during a meeting of the board of governors of the European Central Bank held in Finland. Echoing information from Reuters quoting three sources, “the data articulated in more than two dozen slides presented to 26 decision makers showed that corporate profit margins rose rather than fell, as one would expect. when input costs rise so sharply”.
“It is clear that earnings expansion has played a bigger role in the European inflation story over the last six months or so,” said Paul Donovan, chief economist at UBS Global Wealth Management, according to the comments collected by Reuters. “The ECB has failed to demonstrate what it is doing in the context of more profit driven inflation. »
Behaviour change
Recently, the Bank of Canada noted that during the post-pandemic recovery, many companies changed their pricing behavior in response to high cost growth, strong demand and supply constraints. widespread supply, according to the results of the Business Outlook Survey for the third quarter of 2022. With businesses and competitors facing the same challenges, consumers were forced to accept higher prices for lack of choice. “Under these conditions, companies have made more marked and more frequent price increases than usual,” it said.
This behavior has changed. In the following Q4 survey, it is highlighted that most businesses have already resumed, or will soon resume, their pre-pandemic behaviors of changing prices infrequently, waiting for concrete signs of increases costs and keep a close eye on the competition’s prices.
Profits up
Thus, Statistics Canada data published in February showed that, in the non-financial sector, net income before taxes increased by 6.5% between the third and fourth quarters of last year. Unsurprisingly, the most significant increase was recorded by the petroleum and coal products manufacturing industry. But overall, this profit increased in 31 of the 39 non-financial industries surveyed.
The increase amounts to 10.1% compared to the fourth quarter of 2021. Over this period, the most pronounced surge in net profit before tax was observed on the side of the other merchant wholesalers (+17%), driven by inflation. This was followed by oil and gas extraction (+16.8%) and the manufacture of petroleum and coal products (+16.2%), helped by soaring energy prices. Food stores have nothing to be ashamed of, posting a 9.3% increase in their profit on this annual basis.
For its part, the net income before taxes of the financial sector increased by 9.3% between the third and fourth quarters, registering an increase in 9 of the 13 financial industries. The rise in net interest income and a particularly feverish trading activity in this troubled year 2022 on the markets are among the main causes. Over one year, the increase was 9.8% compared to the fourth quarter of 2021.
Greater increase in margins
But the above applies to profit growth. As for the profit margin, the Institute for Socioeconomic Research and Information notes that the average net profit rate for the first three quarters of 2022 was 9.1% for all companies, compared to an average of 7.6% for the period 2014-2019, i.e. an increase of 20%. For the non-financial business line, the profit margin was 7.1% compared to 5.8% (an increase of 22%) and for the financial segment, 28.4% compared to 23% (an increase of 23%).
We have seen it in food. One big observation emerged from quarterly corporate financial data released in November 2022. In the words of Statistics Canada, grocery stores are seeing significant profit margin growth. For them, the average pre-tax profit margin was 2.2% before 2020 and 3.5% in the first three quarters of 2022, representing an increase of 1.3 percentage points between the two periods. retained, or 59%. While it remained, with some exceptions, below 3% between the first quarter of 2017 and the fourth of 2019, it reached an average of 3.7% from 2020.