Inflation in the last month of 2002 slowed to 3.4 percent but manufacturing output in November hovered perilously close to negative territory, data released by the National Statistics Service (NSS) yesterday showed. Economists said the two are closely linked, with high inflation eroding the competitiveness of Greek products and also pricing them out of the market. The consumer price index last year averaged out to 3.6 percent, up from 3.4 percent in 2001, after inflation in December eased to 3.4 percent year-on-year, the NSS said. Harmonized annual inflation last month dropped to 3.5 percent from 3.9 percent in November, but was still significantly higher than the 2.2 percent estimated for the eurozone. Adverse weather conditions last year played a major role in jacking up consumer prices, said Christos Avramides, head of analysis at Proton Investment Bank. Fresh produce prices shot up last January after an unexpected cold spell hit the country, sending inflation soaring to a year-high of 4.4 percent. The euro changeover was another major factor which led to across-the-board pressure on prices, Avramides said. European Central Bank Governor Wim Duisenberg last month said the central bank «should have been more honest about this [the switchover’s influence on prices].» The Bank of Greece estimated the changeover pushed up prices by 0.2 percent. Michael Massourakis, head of the macroeconomics division at Alpha Bank, said the impact was far bigger: «We estimated a 0.8 percent effect.» The government’s inability to rein in expenditure is also underpinning high prices. Greece’s high-spending ways came in for criticism by the European Commission earlier this week. With no clear binding norm for current primary expenditure, it is doubtful whether Greece can cut spending as targeted, it said. Avramides said above-average growth rates are great news for any country, but it should bear in mind the accompanying inflationary pressures. While GDP data for 2002 has yet to be released, all signs showed that economic activity last year expanded in line with the official target of 3.8 percent. Inflation might be easing but it took a heavy toll last year on the manufacturing sector, which reported anemic growth of 0.1 percent in the January-November period and 0.3 percent in November. «Apart from the construction and infrastructure sectors, which are buoyed by the 2004 Olympic Games and inflow of community funds, the rest of the Greek economy is in a decline,» Avramides said. «This is due in part to high inflation, which is making local products less competitive and more expensive.» The economic slowdown in the eurozone is further inhibiting Greek exports. The construction sector, in contrast, could not be more buoyant, with volume in September expanding by 8.9 percent and by 37.6 percent in the first nine months of 2002, NSS statistics showed.