Average inflation lowest since ’99

Average inflation in 2004 was at its lowest levels in five years, but a new price spike is imminent and could become lasting later this year, the head of the National Statistics Service (NSS) warned yesterday. The consumer price index (CPI) grew by an average of 2.9 percent last year, NSS Secretary-General Manolis Kontopyrakis announced yesterday. This is a significant drop from 2003 and 2002, when the inflation average was 3.5 percent, but still leaves Greece close to the top among eurozone countries. The only other time in the past 35 years that inflation averaged under 3 percent was in 1999. The harmonized index of consumer prices (HICP), an inflation measure adopted by the European Central Bank, averaged 3 percent in 2004. Inflation was running at an annual rate of 3.1 percent at the end of December, unchanged from end-November, while month-to-month inflation growth was 0.4 percent, Kontopyrakis said. December’s HICP rate was 3.2 percent in Greece and 2.3 percent in the whole of the eurozone. The NSS chief predicted, however, that the CPI rate would reach 4 percent at the end of January because the winter sales period that normally begins in mid-January has been limited to the month of February this year. While he expects prices to fall back to the 3 percent level in February, Kontopyrakis warned that the favorable base effect from last year’s high fruit and vegetable prices will end in April and chances of inflation rising again are quite high. Kontopyrakis told reporters that there was a significant slowdown in inflation over the last 10 months of the year. He said this could be the result of better market coordination but could also be attributed to a lack of liquidity. Another indication of the lurking dangers of inflation is that core inflation, which excludes volatile fuel, fruit and vegetable prices, rose to 3.5 percent in 2004 from 3.2 percent in 2003. Thus, the fall in the CPI was attributable to the great drop in vegetable prices, beginning in April, which offset a rise in fuel prices. After a fall in the last months of 2004, oil prices are on the rise again and secondary effects from this rise could boost inflation after the first quarter. EFG Eurobank economist Platon Monokroussos forecasts inflation heading lower in the first quarter of the year on the back of the favorable base effects before spiking again in the second half. He has a 3.0-3.1 percent average forecast for 2005. «There are upside risks in the second half,» Monokroussos warned, pointing to fresh global oil price hikes, secondary effects from past oil price increases and persisting demand-side pressures as well as higher labor costs. Bank of Greece Governor Nicholas Garganas has warned against the generous pay rises granted by private-sector employers and the state. He has called in the past for pay rises to match the expected inflation rate plus any gains in productivity. (Kathimerini, Reuters)

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