MNB Points to ‘Significant’ Rise in Profit Inflation

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The practice of companies raising prices to a larger degree than justified by increased costs has had a bigger impact on headline inflation since the second half of 2022, the results of an analysis by the National Bank of Hungary (MNB) show, according to a report by state news wire MTI.

The analysis, detailed in the central bank's latest quarterly Inflation Report, suggest profit inflation – that part of inflation that cannot be explained by the evolution of costs – was behind nearly one-third of headline inflation in Q1 2023.

MNB staff acknowledged that the direct effects of profit on inflation cannot be distinguished from other factors, but said data such as gross operating surplus suggest that increased profitability may have played a "significant" role.

The analysis shows corporate profits rose to a greater degree parallel with the rise of inflation in all of the Visegrad Group countries – Hungary, Czechia, Poland, and Slovakia – but rose the most in Hungary.

In recent quarters, the average profit of companies in the industrial sector has risen close to 50pc, while earnings in the commerce and catering sector have climbed around 25%, according to the analysis.

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