Inflation jump will not last

Analysts agree the recent spike in prices is a temporary phenomenon as demand has soared

Inflation jump will not last

The 3% August reading of the consumer price index in the eurozone sent shivers across the bloc and the markets; however, prices in Greece only rose 1.4% in July, and most local and foreign economists agree that the specter of inflation should not alarm the country as the issue appears to be temporary.

Prices appear to have climbed as a result of the sudden rise in demand after the lockdowns that supply has been unable to match.

The Bank of Greece anticipates zero inflation for this year and 1% for 2022, against a European Central Bank projection for 1.9% in the eurozone in 2021 and 1.5% in 2022 and 2023.

Central banker Yannis Stournaras said a few days ago that one should not place too much significance on inflation, as its rise is attributed to temporary factors “related to various points of congestion in supply due to the pandemic.” 

He added that “developments in salaries and the labor costs per unit that determine the core of inflation do not show the same volatility as inflation itself.”

Economists stress that inflationary pressures in Greece are relatively smaller due to the production shortfall. However, they note that there will be some pressure on households at first, and particularly on certain low-income categories, as a result of hikes in energy costs.

Some analysts even warn that the consumer price index may swell to 2% by the end of the year, dealing a blow to households’ disposable income and enterprises’ operation costs.

The government discussed the matter at last Thursday’s cabinet meeting, identifying two main causes for concern, according to sources: Even if the problem is temporary it will likely stretch into 2022, especially as far as energy rates are concerned, therefore measures must be taken; and, if the problem persists, there is a risk for the Greek state’s borrowing costs and new restrictions may be imposed on fiscal policy.

An early indication of the ECB’s intentions is expected at its executive board meeting this Thursday.

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