Oil hikes have hit Greece hardest

Dependency on the commodity and local distortions mean inflation rose more than elsewhere

A National Bank report indicated yesterday that inflation this year will close at 4.4 percent, fuelled by the rise in international oil prices and the structural weaknesses of the Greek economy.

Core inflation will exceed 4.2 percent by the end of the year and register an average level of 3.7 percent, dealing another blow against the international competitiveness of the country. The growth rate is expected to slow to 3.3 percent this year and down to 2.7 percent next year.

National confirmed that the oil price hikes have had a far greater impact on Greece than in the rest of the eurozone. “The increase in domestic core inflation from a potential 10 percent rise in oil prices is 40 percent greater in Greece than in the rest of the eurozone, while the inflationary impact persists for a considerably longer period of time. As a result, the increase in oil prices by 42 percent on an annual basis in euro terms over the last six months has added 0.7 percent to inflation compared with 0.4 percent in the eurozone as a whole,” the report notes.

The higher impact on inflation is attributed to strong demand, the high degree of dependency on oil (with oil consumption in Greece amounting to 9.8 percent of gross domestic product, against 6.6 percent in the eurozone) and the distortions in competition in product markets that allow companies to maintain high levels of profit. It is also due to rigidities in the local labor market and salary increases.

The report forecasts a gradual reduction of inflation in the third and – mainly – the final quarter of the year, to about 4 percent. For next year the report expects inflation to average around 3.4 percent. The National Statistics Service (NSS) estimates that the consumer price index dropped slightly to about 4.7-4.8 percent in August from 4.9 percent in July.