ECONOMY

Ministry asks companies to explain price hikes

Businesses are required to provide certain explanations about price increases but are not legally obliged to publicize their costs, says Deputy Development Minister Giorgos Vlachos. He was commenting on ministry action to curb the latest wave of soaring prices on an extensive array of products. He added however that «businesses are politically and socially required to provide us with answers.» The Development Ministry has sent letters to a number of manufacturers and importers who have already announced price increases above the Consumer Price Index (CPI) as of January 1, 2008. The ministry is asking firms to submit details to clarify their price policy, Vlachos said. Consumers – currently paying between 7 percent and 81 percent more for certain products compared to other European Union member states – have seen their incomes shrink in 2007 as a result of price hikes of up to 40 percent. It follows that a large number of consumers have resorted to buying less in order to balance out price increases on foodstuffs. In an attempt to rein in prices, the Development Ministry (which has no authority to interfere with the market) has asked supermarket firms to build up competition on private label products. At the same time, supermarket chains currently notify the ministry on a daily basis about their prices on 450 necessities. «[Supermarkets’] commitment to retain the same price policy and avoid increases – unless price hikes come from producers – remains to be realized. Final results would come out of this practice,» Vlachos said. In tackling the wave of price hikes, a sure bet for the Development Ministry would be to set clear terms for the market’s operation and further help boost competition. Poor competition is believed to be the main cause for the major price differentials in Greece compared to other EU member states. The case of milk, for instance, is regarded as the most telling: In Greece, brand-name milk is sold 34 percent more expensively than it is in Austria, while organic milk is priced 81.65 percent extra compared to Germany. Other factors with negative implications on prices are related primarily to high distribution costs, the higher profitability levels maintained by domestic firms, consumer preferences and low levels of market infiltration by generic products (generic products, sold up to 40 percent cheaper, can be a fine lever for putting pressure on brand products, forcing firms to lower their profitability levels in order to compete). A barrage of price increases in recent weeks has forced consumers to reconsider their budget plans for the Christmas and New Year holidays. Notably, a survey by professional services firm Deloitte has found that food is more important to Greeks than presents. Thus, up to 32 percent of consumers are likely to buy fewer presents as a way to be able to buy the same quantities of food as last year. According to the Consumer Protection Center, the cost of the Christmas dinner this year was 7.0 percent to 32.0 percent dearer compared to last year. In 2006, the average cost of the Christmas dinner was between -55 and -108, against -69 to -127 this year.