ECONOMY

Greece highly dependent on oil

For every 100 euros that the Greek consumer spends, 1.5 euros is due to the rise in world oil prices in recent months, according to a recent study by the Bank of Greece. The additional burden means that a household with an annual disposable income of 24,000 euros has seen its purchasing power reduced by 350 euros. The study comes to confirm Development Ministry estimates that the effect of higher oil prices on the consumer price index has been more than 1 percentage point, which means that without this factor the annual Greek inflation rate would have been around 2 percent – near the eurozone average and the stability level set by the European Central Bank. Greece has the lowest pump prices in the European Union, due to its low fuel tax rates. How prices rise The central bank estimates that each 10 percent rise in the price of brent crude oil has a direct 0.19 percent effect on the consumer price index (CPI) – against 0.10 percent in the rest of the rest of the EU. Since the beginning of the year, the price of brent has gone up by 53 percent, which means an approximately 1 percent increment on the CPI. If the same trends in oil prices persist, the annual inflation effect will be about 1.5 percent. According to the study, the estimate of this effect is as follows: – Domestic fuel prices change to a lesser extent than world oil prices. Development Ministry data shows that the price of brent crude was $43.69 per barrel at the beginning of the year and the average price of lead-free gasoline in Greece 0.748 euros. Yesterday, oil was $66 per barrel and lead-free gasoline 0.95 euros. That is, oil has gone up in price 53 percent and lead-free 32.3 percent. This divergence between changes in crude oil prices and the retail or wholesale cost of fuels reflects developments in other factors affecting domestic fuel prices, such as the cost of refining, distribution and marketing, profits and taxes. Specifically, 55 percent of the price of gasoline and 54 percent of the price of diesel at the pump are comprised of indirect taxes. Only 19 percent of the retail price of gasoline and 16 percent of the corresponding price of diesel are accounted for by the cost of refining, distribution and marketing, and the profit margin. Thus, the cost of raw material represents 26 percent of the price of gasoline and 30 percent of the price of diesel. – Fuels have a weight of 5 percent on the CPI. So, a 3.8 percent rise in their average-weighted price (after a rise in the price of crude in euros by 10 percent) leads directly to a 0.19 percent increase in the CPI. According to Eurostat’s Energy Intensity in the Economy Index, the consumption of energy per unit of real gross domestic product (GDP) in Greece did not change between 1991 and 2002, but it fell by an average of 12 percent in the former 15-member EU countries and 9 percent in the eurozone. Dependence on oil Moreover, energy consumption per unit of GDP was 35 percent higher in Greece in 2002 than the 15-member EU average. According to Eurostat data, net Greek oil imports represent 65.2 percent of gross energy consumption, against averages of 44 percent in the eurozone and 32.9 percent in the 15-member EU.