Increases in wage costs, not covered by valorization in public procurement, generate key cost increases, especially in services, where the labor component is a high share, according to Impel owner and CEO Grzegorz Dzik. According to him, the descent of inflation to below 10% y/y may take 2-3 years in Poland, and this means still high debt costs.
“Prices are primarily unstable and this is the worst thing. From the perspective of Impel’s account, however, this is not the most important cost factor. We have another very dangerous area of inflation’s impact, which is the surge in wages. Increases in wage costs, uncovered by valorization in public procurement, generate key cost increases, especially in services, where a high share is precisely the labor component. The public procurement law has not yet been tested in a high-inflation environment. The amended procurement provisions in 2021 in Article 439 of the Public Procurement Law are very unfavorable to contractors, they allow the burden of inflation to be shifted to entrepreneurs, because bidders have no way to influence the content of contracts, they are unquestionable,” Dzik said in an interview with Business Insider Polska.
In addition, companies are generating “empty-margin” revenues on the valorization of minimum wages, because statutory valorization does not provide any margin, and companies have to cover the costs of financing late payment of invoices themselves, he pointed out.
“Many laundry companies that serviced hotels, for example, have gone bankrupt. The problem of persistent high inflation will undermine Polish businesses more and more. In a high-inflation environment, there is a reduction in profitability and results, and liquidity problems will arise, especially for smaller companies, which often have no chance to raise capital or borrow money,” CEO added in an interview with the portal.
He also pointed to the cost of debt, which has increased several times as a result of interest rate hikes.
“The financial cost has risen five or six times in a few months in some businesses. In an environment of very low profitability for service companies in the FM [facilities management – ed.] industry, this leads to depriving half or sometimes even all of the profit,” Dzik said.
According to him, inflation will remain high for a long time to come.
“Core inflation, which is the basis for long-term and disruptive inflation, is high, and the elements that make up it are quite persistent. Therefore, I think it will take a long time for inflation to go below 10%. Maybe two or even three years,” the CEO forecasts.
Source: Impel, Business Insider Polska and ISBnews
