ECONOMY

Central bank report blames cartels forGreece’s persistently high core inflation

Cartels in the Greek market are responsible for the country’s relatively high cost of living, by maintaining core inflation at high levels, the Bank of Greece says in an analysis paper, arguing that the recent fall in inflation is mainly due to the lower prices of oil, fruit and vegetables. The central bank refers to «a persistence of core inflation at relatively high levels, in the order of 2.5-3.0 percent.» A basic reason is cited as «the unsatisfactory conditions of competition in some markets,» with a clear reference to the cartels dominating many sectors. The analysts further argue that such unsatisfactory conditions of competition are prone to maximizing the impact on inflation of any exogenous factors. The paper also argues that «prices are unfavorably affected by developments in the cost of production, excess demand and its inelasticity with regard to prices (for some goods), as well as the exploitation by enterprises of their dominant market position, and harmonized practices or collusion among firms.» The central bank points out that a probe by the Competition Commission into the fresh-milk sector yielded strong indications of horizontal collusion among manufacturers affecting consumer prices. In another probe, the commission also found that there are significant margins for further strengthening competition in fuel distribution and marketing, and called for a process of public consultation regarding the appropriate measures, the paper says. It is also pointed out that earlier this month the commission imposed fines on the country’s three main refineries for harmonized practices in the pricing of jet fuels. Excess demand is seen as contributing to inflation as it signifies the fact that the growth rate of the gross domestic product continues to outpace the potential growth rate of the economy, and because it partly affects the pace of cost production rises. According to central bank data, household credit, particularly mortgages and consumer loans, fueled strong consumer demand, which was the main factor in Greece’s high growth rate in 2006 (4.4 percent).