Inefficiencies boost prices

The government yesterday rejected the conclusions of a report by the Economic and Social Committee (OKE) on the impact of inflation on a great section of the population and tried to explain away the findings of an international survey showing Greek prices converging fast with those of the richest European states, where purchasing power is significantly higher. «Instances of high costs exist. However, our concern is for the citizen consumer, the effective functioning of the market and promoting competition… Criticism is welcome, but the truth is even more so. The state is vigilant and results are satisfactory,» Development Minister Dimitris Sioufas and his deputy, Yiannis Papathanassiou, said in a joint statement. The OKE report «Socioeconomic consequences of the high cost of living» says that inflation is causing a redistribution of income at the expense of salaried workers and pensioners, a fact that hinders economic growth and endangers social cohesion. Prices in the Greek market have significantly converged with those in Western European countries while wages are still lagging behind. Even Greece’s high growth rate contributed to the problem, because it was based on increased state spending, inflows from the European Union and credit expansion. The resulting increase in demand, says OKE, created inflationary pressure, higher than the EU average. Moreover, Greeks’ consumer habits changed, making spending on formerly low-demand goods and services inelastic. While the overall inflation level – less than 4 percent – is low for Greece (it suffered from double-digit inflation between 1972 and 1995), the prices of some widely consumed goods and services have risen at a much faster pace. The introduction of higher value-added tax rates in April 2005, combined with the non-indexation of the tax-exempt income level, are further factors increasing the cost of living. OKE also underscores the fact that the Greek economy is lagging behind others in Europe in the functioning of goods and services markets, where there are relatively more instances of price collusions and oligopolies. Such markets include fuel and fresh farm products. Also many state services are «irrationally priced» and too expensive. OKE recommends enforcing competition rules, more powers to the Competition Commission, improvements in the distribution network of farm products, a more activist consumer movement and reforming the operations of the National Statistics Service (NSS). The Ministry of Development remarked that these recommendations form the backbone of its policy but sidestepped the criticism over the dysfunctional markets. The international survey, by research firm ACNielsen, of 15 European countries showed Greece in the middle as far as prices are concerned. It is more expensive than Austria, Belgium, France, Germany, Italy and the Netherlands, countries with far higher wages. The ministry merely remarks that Greece’s price index is «below the European average (98 compared to 100)» without mentioning the disparity in wages.