ECONOMY

Whose fault is inflation?

Inflation psychology arises easily but subsides with difficulty. It is usually sparked by an unusual event, but the causes are deeper. Take, for instance, the recent rise in oil prices. Its repercussions on the market’s psychology are certain to far exceed their purely economic impact on gasoline prices. The reason is that many consider that higher oil prices present an opportunity to increase revenues without extra investment and cost. And the problem emerges because the domestic market is affected by conditions of limited competition. The Greek market is small, geographically isolated from the rest of the EU and the economy is dominated by a limited number of large firms. Competition is further hampered by the huge public sector, which adds to the costs of those competing. The traditional manufacturing sectors of the Greek economy, such as cement, foodstuffs, beverages and textiles, operate in such an environment. If there was suddenly to be any real opening up of the market, many of today’s giants would become problematic enterprises. It is no coincidence that the prices of Greek exported products are higher at home; on the international market, firms sacrifice profits in order to gain market share. Indeed, they can largely do that by selling more expensively at home. But every time prices start ascending at home, the sector held responsible points to the one next to it: Supermarkets blame food industries, which, in turn, point an accusing finger at the farmers, who blame the weather. Now that oil prices are rising, the chain of accusation goes from gasoline sellers to fuel marketing companies to refineries, ending in… China with its high growth rates and consumption. The scene is completed with government intervention each time. Such intervention is usually based on what the media says about «a wave» of rising prices, and for this reason communication exercises are also prominent in dealing with the issue. Statements are made, probes announced and some profiteers are fined. In reality, nothing dramatic happens, enterprises pretend to comply. Besides, different issues will be in the headlines soon. Life is not drab.