Company profits in focus in Central and Eastern Europe inflation fight

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As a decline in real wages spills over from the Czech Republic into Poland and Hungary, the question is how bold companies will be in the repricing of goods and services that already saw hefty markups.

A fall in gas prices means the region could weather a winter downturn with limited hit to output – good for economic growth but possibly a new trigger for inflation levels already in some cases double those in the economies of the euro area.

While Spain’s left-wing government is on the watch for any excess profits made by supermarkets and others, and authorities in Portugal have also seen signs of rising profits, it has not featured strongly in European Central Bank deliberations. “The pricing power of companies can prevail for longer if they experience no drastic collapse in purchasing power,” ING economist Peter Virovacz said. “Although the change in real wages over the course of the year could be negative, this can be substantially smaller than we had expected earlier.

Prime Minister Mateusz Morawiecki has called on state-owned railway firms to cut intercity ticket prices after hikes of between 11.8% and 17.8% this year, making air travel a cheaper option than taking some trains between Poland’s largest cities. Czech central bank Vice Governor Eva Zamrazilova has said corporate margins are one area to monitor for possible price dangers, adding however that recent developments showed consumers were becoming increasingly sensitive to high prices.

 

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