Inflation a problem, say minister and central bank
Rising prices could put a brake on Greece’s high economic growth and hurt its competitiveness, the government and the Bank of Greece warned yesterday amid indications that inflation is likely to exceed the eurozone average in the remaining months of the year and even stretch over to 2003. The alarm reflected a similar warning from the Organization of Economic Cooperation and Development last week. In its latest economic outlook, the Paris-based think tank highlighted the spike in Greek inflation as one area of concern. Stubbornly high inflation can be partially explained by Greece’s strong economic expansion, Economy and Finance Minister Nikos Christodoulakis said. «High inflation, to some degree, is due to Greece’s high growth rate. Ireland and the Netherlands, which have similar growth rates, also have high inflation,» he said. Left unchecked, rising prices could derail economic growth and erode the country’s competitiveness, he warned. Greek harmonized annual inflation in October edged up to 3.9 percent from 3.8 percent in the previous month, sharply above the European Central Bank’s 2 percent ceiling and the eurozone average of 2.3 percent. It was the fourth highest in the region after Ireland, Portugal, Spain and the Netherlands. Growth, estimated at 3.8 percent this year, in turn, is expected to be the fastest in the eurozone. Echoing the minister’s comments, Nikos Garganas, governor of the Bank of Greece, said high inflation could threaten growth, competitiveness and jobs. He urged vigilance and suggested measures to deal with the problem. Inflation is expected to form a central theme of the bank’s interim monetary policy report to be tabled in Parliament on Friday. Inflationary pressures are not expected to abate in the final months of the year and could even carry over to 2003, Platon Monokroussos, EFG Eurobank Economist, said. There are no signs of a decline this month. Inflation is likely to remain at the October level,» he said. Favorable base effects coming into play in December could provide some temporary relief. The early months of 2003 could see inflation easing off due to base effects related to the euro changeover and a cold spell at the beginning of this year. The deceleration notwithstanding, Greek harmonized inflation is seen exceeding the average eurozone figure in 2003, Monokroussos predicted. Greece’s high growth rate, projected at 3.8 percent next year against the eurozone’s 1.8 percent target, is one of two factors that have kept, and are expected to keep, prices at high levels in the coming year. «Structural problems are the other cause,» Monokroussos said. Opening up markets and lessening red tape could slow down inflation.