Prices going up in Greece even with growth slowing

Greek inflation will accelerate this year, even as slowing consumer spending curbs economic growth, the country’s central bank governor said. Greece’s European Union harmonized inflation rate may rise from last year’s 3 percent as higher oil and food costs push up consumer prices, Nicholas Garganas said in an interview yesterday in his Athens office. He was citing initial estimates made by the Bank of Greece, the country’s central bank. «I expect that inflation will be higher on average this year,» said Garganas, who is also a member of the European Central Bank’s governing council. The Bank of Greece will publish its final economic forecasts in its annual report later this month. Greek gross domestic product will expand slightly less than the 2007 pace of approximately 4 percent, Garganas said. Consumer spending is slowing in Greece as rising interest rates hurt lending, and price increases outpace the euro-area average. Consumption expanded by an annual 3 percent in the third quarter, its slowest pace in at least seven years, according to Greek statistics agency data. «We would expect a very slight deceleration in growth of only a few decimals of a percentage point in 2008,» he said. «Almost half of growth came from consumer spending in the past, now there’s some evidence that this is slowing down,» Garganas said. Boost from private investment Private investment will help to sustain the economic expansion near last year’s level, according to Garganas. Greece «will continue to enjoy fairly robust growth this year,» he said. That would be the 15th consecutive year of growth for the country’s -214 billion economy – the longest period of continuous economic expansion since the 1960s, as falling interest rates and European Union funds boosted spending and investment. Economic growth has reduced unemployment to a nine-year low of 7.9 percent in the third quarter. Average wages have increased by almost 6 percent a year since the country joined the euro area in 2001. Preventing higher oil and food prices from having second-round effects and boosting inflation «is especially crucial in the case of Greece because of the accumulated loss of competitiveness over the past seven years,» he said. «We have constantly had above-average rates of growth in unit labor costs in Greece, although the rate of growth of productivity has been quite satisfactory,» Garganas said. (Bloomberg)