September inflation surprise

The consumer price index (CPI) in September fell by a bigger-than-expected margin to 3.6 percent year-on-year from 3.8 percent the previous month, figures released by the National Statistics Service yesterday showed. But annual harmonized inflation remained flat at 4 percent. September’s lower reading was due principally to the large slide in oil prices, down by 7.2 percent year-on-year, which helped to offset the sharp jump in meat and fruit prices. Pork and mutton were more expensive by 15.7 percent and 15.9 percent respectively, while the 25.8-percent surge in fruit prices underlined the damage caused by the prolonged summer drought. Seasonal factors, such as the lower than expected increase in education-related costs, also eased some of the inflationary pressures. EFG Eurobank Ergasias economist Platon Monokroussos predicts a major slowdown in the last quarter of the year. I see a big deceleration starting in mid-October when heating oil is reincluded in the CPI basket, he said. The oil component added 0.45 percent to the index in October of 2000 which means that this month we will see a favorable base effect. Greek inflation is also expected to benefit from the general inflation slowdown in the eurozone, the stronger euro and faltering domestic demand, Monokroussos argued. Paul Mylonas, director of the National Bank’s strategic planning and research department, holds a similarly optimistic view of the consumer price trend ahead. The projected slide in global oil prices should help ease inflationary pressures in the last quarter of the year, he said. Economists said the deceleration in headline inflation was also seen in core inflation which excludes vegetables, fresh fruits and fuel. Monokroussos noted that the Bank of Greece-monitored core inflation dropped to 3.8 percent from 4 percent in August, while Mylonas reported a more conservative estimate of 4 percent, down from 4.1 percent. While the September reading was positive, it was not enough to suggest that any major improvement lies ahead, said the EFG Eurobank Ergasias economist, sticking to his projection of average inflation of 3.5 percent for 2001. Agreeing with the assessment, Mylonas said a 3.5-percent target was feasible. He said that average inflation could even dip to 3.4 percent should oil prices continue to fall. Presenting the 2002 draft budget last week, National Economy Minister Yiannos Papantoniou said the official target for this year was 3.1 percent.

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