Inflation to slow but stay high

Greece’s inflation rate is expected to decelerate next year due to a drop in oil prices but will remain well above eurozone levels, weighing on the country’s competitiveness, the Organization for Economic Cooperation and Development (OECD) said yesterday. The Paris-based group said in its biannual economic outlook that Greek EU-harmonized inflation is expected to fall back to 3.2 percent year-on-year in 2009 from an estimated 4.2 percent this year. «Headline inflation has jumped but should ease back as the impact of oil and commodity price hikes wane,» the OECD said. Inflation is expected to pick up to more than 4.6 percent in May, the highest levels seen in about six years, on the back of soaring oil and food prices. «Inflation is likely to remain above the euro area average, however, thus weighing on competitiveness,» the OECD added. The spike in consumer prices is a trend seen across the eurozone, where inflation is seen at 3.4 percent this year, having jumped from from 2.1 percent in 2007. Despite currency appreciation, upward price pressures are strong and it is only toward the end of 2009 that inflation is expected to revert to 2 percent, the OECD pointed out. It also repeated its call for reforms in the economy, saying that strict implementation of the recent pension reform is vital, along with other changes. «A comprehensive reform in the healthcare system and greater administrative efficiency are also indispensable,» the OECD said. Greece earlier this year passed a series of reforms through Parliament involving the merger of tens of pensions funds into just a handful, in a move aimed at helping to make the system more viable. The reforms were met with strong opposition by workers who launched weeks of strike action. On the upside, the Greek economy is seen as continuing to grow strongly, but at a slower pace, as private consumption drops. The OECD said it expects gross domestic product (GDP) to expand by an annual 3.4 percent next year from a targeted 3.5 percent rate this year. [email protected]