Inflation looks to be on the slide

The annual inflation rate is set to fall further, to 2.8 percent in October from 2.9 percent in September and 3.5 percent in August, preliminary data collected by the National Statistics Service (NSS) show. Even more encouraging, NSS officials say, is the fact that average inflation for 2006 is expected to be 3.2 percent, down from earlier estimates of 3.5 percent. Ministry of Economy and Finance officials said this piece of news meant that an inflation rate closer to 2 percent was possible in 2007, despite International Monetary Fund predictions that crude oil prices will average $75 per barrel next year. The slight drop in the inflation rate last month was mostly due to the 0.3 percent drop in heating oil prices compared to last year. The NSS is also set to announce good news about gross domestic product (GDP). According to sources, third-quarter GDP growth will be close to 4 percent, a sign, they say, that robust growth is becoming a permanent fixture and a contradiction of predictions for a post-Olympics slump. These pessimistic predictions had been made before, and especially after, the 2004 Athens Olympics, when the government had drastically cut public investment outlays in the 2005 budget in order to contain ballooning deficits. Signs of strong GDP growth include robust industrial production growth for the first time following a period of shrinkage. Also industry sales and new manufacturing orders are positive factors, NSS officials said, adding that the economy will expand 4 percent this year, up from the 3.8 percent forecast in the 2006 budget. For the government, a higher GDP growth rate is a godsend that will help it achieve its target of keeping the 2006 deficit to below the EU-imposed limit of 3 percent of GDP and will also allow it to achieve a similar deficit in the 2007 budget. (With the EU set to examine Greece’s claims that the country’s actual GDP is 25 percent higher, the 2007 budget will be drafted using the old figures. In any case, EU officials have expressed reservations about revision on such a scale.)

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