ECONOMY

Media contributes to undue hysteria over rising fuel prices

Greece has satisfactory economic growth rates; the common European currency ensures stability and rules out currency upheavals, and the consumer price index (CPI) tends to stabilize below its hard core, approaching the EU average. It is a mistake to say that Greek inflation is double the EU average. The respective rates were 3.1 percent and 1.8 percent in April, and the 1.3 percent difference only shows the changes in prices on an annual basis, rather than the difference in the total cost of goods included in the household shopping basket, which determine the real cost of living in each country. In April, China’s consumer price index was around 4 percent but it remains one of the most competitive countries in the world, while it is not at all strange that it has flooded the eurozone – whose average CPI was much lower (2 percent) – with its products. Some optimists, like myself, do not share the largely hysterical attitude of the media, especially the printed press, about rising prices, which Hellenic Petroleum’s Chairman Timos Christodoulou last week aptly described as «inflationary blubber» that fuels profiteers’ expectations. An experienced technocrat, Christodoulou found the widespread fear of inflation produced by fuel prices unjustified, pointing out that rolling over higher costs to the consumer can only take place gradually, as existing reserves run out and the more expensive quantities come downstream. Theoretically, the principle that forms the basis of replacement (higher) prices is the principle that in commercial practice, the pricing of reserves must follow the sequence commodity-money-commodity, not money-commodity-money. The former is adopted so that no extra capital is needed for the replenishment of reserves, ensuring that profit is maintained. The larger the reserves, the more painful the replacement price is for the consumer, the more frequent and greater the price changes, and, finally, the more inelastic and difficult it is to substitute demand for them. Fuel products have all these attributes and their prices are rousing concern, not just here but in the entire world that depends on them. I am of the opinion that the planned reduction in the special consumption tax on fuels is not the best solution and will widen our already huge fiscal deficit. The government could take stock of and carry out a costing of reserves at all levels of the distribution chain, including the refining stage. This should be done by the refineries and fuel-marketing companies (there are no more than 25-30) on the basis of cost averages rather than replacement prices (last in-first out). As regards retail prices, due to the large number of gasoline stations in the country and their accounting inadequacies, the authorities could set a fixed sum (not a percentage) as gross profit in every prefectural district (i.e., 5 cents per liter for Attica) for as long as necessary. Inspections would apply to invoices – a familiar procedure to tax authorities – but should also be intensified in the retailing sector to curb the adulteration of fuels and illegal trade which flourish during periods of rising energy prices. The responsible departments should not succumb to suggestions that such methods tend to be bureaucratic and largely inapplicable, as they have been proven to work in the financial sector, for example, with the application of new technologies. Vendors will set fuel prices themselves and the government will exercise control. It is a feasible, simple, fair and mild form of price intervention. (1) Stavros Tsoukantas is a former general director of the Ministry of Trade (now Development).