Wages, profits fuel price hikes

Departing Bank of Greece governor blames over-the-top earnings, salary increases for high inflation

Greece’s high inflation rate is partially due to companies taking advantage of their leading market position to book excessive profits and workers being given over-the-top wage hikes, said departing Bank of Greece Governor Nicholas Garganas yesterday.

Garganas, whose term as Bank of Greece chief ends on Saturday, said in his last meeting with journalists that high profits and wage hikes contribute to upward consumer price pressure.Recently, external factors also arose, such as the rise in petrol prices and food costs, which also affect all of our European partners, he said.

Based on figures put together by the central bank, wholesalers in 2007 saw their profits rise by an average of 82 percent, while retailers and other industrial companies recorded a 21.5 percent and 11 percent rise in profit respectively for the same period.

Wages, on the other hand, are forecast to increase 8.3 percent this year, while productivity is seen rising by 1.6 percent.

“The Greek economy is not condemned to enter a period of stagflation, as long as drastic measures are taken,” said Garganas.

Greece’s consumer prices index jumped to 4.9 percent on an annual basis in May, the highest level in about a decade, on the back of rising oil and food prices.

Economists do not expect a deceleration in the price index until the last few months of the year.

“Inflation (in 2008) will be higher than 4 percent,” Garganas said. “This is a personal estimate not an official forecast.”

He also called on the government to take steps to open up closed professions, sectors of industry that regulate the number of new entrants in a bid to control supply.

“The way these professions operate needs to be studied as they enjoy incomes that do not correspond to their contribution to society,” he said.

He declined to talk about the outlook for the eurozone economy or interest rates ahead of his retirement from the Bank of Greece, and the ECB’s Governing Council, on June 14.

Garganas will be replaced by George Provopoulos, a UK-trained economist and former deputy governor.