October’s wholesale inflation data reignited the debate over the company’s profitability. The IPIM index recorded 1.1% monthly and confirmed a noticeable slowdown compared to 3.7% in September. However, this variation not only shows less pressure on costs, it also widens the spread in terms of retail prices and forces us to review whether this gap means a real improvement in margins.
A report prepared by Banco Provincia’s Economic Studies Department shows that exchange rate dynamics explain a large part of the recent softening in business costs. The wholesale index takes prices up to the 15th of each month, so the comparison places September with high exchange rate volatility against the more stable October and November on the same line, without sudden jumps. Between points, the wholesale currency rose 11.7% in the first half of September and fell 6.1% in the same period of October. This variation had a full impact on the prices of imported goods: they rose by 9% in September and fell by 1.4% in October.
The IPIM structure shows that the imported component has a crucial role in cost formation. Primary products also have an impact, as the real exchange rate is favorable because they are exportable goods; The factory is the most dependent on salaries and services. Electric energy, the price of which is linked to financial policy. This last item will have additional pressure due to the tariff update scheduled for November.
In this context, retail prices have risen 3% above wholesale prices so far this year. If we take November 2023 as a reference, the cumulative difference between the two reaches 31 points (241% vs. 209%). This gap can be read as an appropriate margin for the productive sector, especially in goods, where the wage rate within costs is lower. But between June and September, this difference narrowed by 4 points due to the rise in imported goods during the electoral period, a difference that was not confirmed by the final prices.
As an example of the current situation of Argentine companies, the business confidence index for the third quarter prepared by Vistage Argentina, which included the participation of 393 entrepreneurs, reflected a moderation in sentiment compared to the previous period. 51% of CEOs, general managers and business owners in Argentina are confident that the volume of units sold will increase over the next 12 months, although 40% believe profitability will decrease.
Guadalupe San Martín, CEO of the network that connects entrepreneurs working to improve their leadership and decision-making ability, urged us to look at the full perspective of these findings.
“There is cautious optimism in the internal management of companies that shows us the resilience of the sector: even in the face of economic uncertainty, which is cited as a major concern, our CEOs are focused on expanding and growing their organizations,” he said.
But the key to understanding profitability isn’t just comparing sales prices to costs. According to Banco Provincia, declining purchasing power and increasing competition from imported products prevent companies from fully transferring their increases to demand. So the economy displays a clear paradox: retail prices rise above wholesale prices, but the total operating surplus shrinks.
Second-quarter data shows compressed margins in core sectors. Trade accumulated a 24% decline compared to the peak in 2023. Industry lost 30%, and agriculture remained 42% below the maximum recorded in 2022, even after the post-drought recovery. Lack of disposable income to support domestic consumption appears to be the main condition.
There are items that have had a more favorable year. Real estate, business services and rental activities moved more dynamically, partly due to the reactivation of mortgage credit.
The report explains that the small exchange rate gap reduced the possibility of obtaining extraordinary surpluses in activities that benefited from access to the official exchange rate to sell in the local market at prices more in line with the parallel dollar.
In mines and quarries, which include oil and gas, the improvement associated with increased activity began to be reflected from mid-2024, when the real exchange rate depreciated more strongly.
The construction sector faces a more dire situation: its surplus is approaching pandemic levels, in a scenario characterized by the paralysis of public works and reduced utilization of installed capacity.
The sector that managed to overcome the downturn was the financial sector. Its surplus operates at record values due to increased credit movement. The measurement corresponds to financial intermediation, that is, the difference between collecting deposits and granting loans.
Sectoral analysis confirms that the gap between wholesale and retail prices does not accurately reflect profitability, as food and public services have a strong impact on both indicators. However, the trend allows us to see that costs fell due to exchange delays and the elimination of tariffs, while consumer prices did not accompany this decline as quickly. Despite this clear margin, total surpluses have deteriorated.
In order to regain it, companies will need to raise prices or increase their sales volume. The first option faces the limits of stagnant income. The second requires a reactivation that has not yet been realized. It is possible that correcting the exchange rate will improve the situation of export sectors, but it will affect industry and trade, which depend on the local market.
The report concludes that a recovery in profitability will depend on the economy’s ability to return to a stable growth path. Only with demand able to sustain a higher price level or stimulate more activity can the equation that determines income, costs, and sales volume be recombined. Meanwhile, this year’s trend shows sectors losing margins more than sectors gaining them.
At the same time, they point out from Vestage that in the next 12 months, 45% of business people estimate that the economic situation will improve; 33% indicate that there will be no changes; And 22% say it will get worse.
The forecasts for their companies during the next 12 months indicate that 51% are confident that the volume of units sold will increase; 34% confirmed that it would be preserved; And 15%, which will decrease.
Regarding profitability, 40% of business leaders stated that it would decrease; 36% believe there will be no changes; The remaining 24% indicates that profitability will increase.
Regarding billing, 52% estimate it will increase; 36% indicate that it will be preserved; And 12% will decrease.