ECONOMY

Concerted action needed to bring down inflation

Explaining away inflation’s sudden rise to 4 percent in January as a statistical quirk should not let government officials, especially in the Development Ministry, relax their vigilance. Indeed, the jump in the annual inflation rate to 4 percent, from 3.1 percent in December, is due to the fact that winter sales began in January last year, while this year they have been limited to February. This caused the clothing and footwear sub-index to jump 12.7 percent from January 2004 to January 2005, pushing the Consumer Price Index (CPI) upward. Even if we removed this particular factor, however, inflation would still be between 3 and 3.3 percent, that is, 50 percent higher than the eurozone average. The persistence of inflation at these levels justifies consumers’ angry denunciations of a wave of price rises. That is why Development Minister Dimitris Sioufas and his deputy, Yiannis Papathanassiou, must update and expand their strategy to fight inflationary pressure to make it more effective. It is true that a main structural weakness of the economy such as inflation cannot be tackled by any single ministry; it requires concerted effort and the involvement of the prime minister himself, as well as all economic players. The greatest blame for the high inflation rate must be apportioned to the big, spendthrift state, whose excessive spending creates inflationary demand that is not matched by an equal supply of goods and services. It is no coincidence that, with the exception of 1999, when with the help of well-known accounting tricks inflation was kept artificially low at 1.9 percent in order for Greece to achieve entry into the eurozone, it has constantly exceeded 3 percent the past six years. During this time, in the eurozone area, inflation has been kept below 2 percent. As a result, the competitiveness of our products has been eroded as they have become increasingly expensive. The effect on our exports and jobs is immediate and painful. The European Commission, the Organization for Economic Cooperation and Development and especially the International Monetary Fund, believe the lax wage policy is to blame. While no one can claim that wages in the private sector are high, partly due to the effect of immigration, it seems that in the public sector and especially public companies, union strength has led to excesses. Instances of profiteering are also to blame for high inflation and, therefore, must be harshly punished.