ECONOMY

High fruit and energy prices drive up October inflation

Inflation in October spiraled up to 3.7 percent, data published by the National Statistics Service yesterday showed, making it highly unlikely that the government will be able to meet its target of average inflation of 3.3 percent for this year. «The upward trend was no surprise but the size of the increase exceeded my forecast,» said Christos Avramides, economist at Proton Investment Bank, who had expected October inflation to come in at 3.6 percent. More worrying for Greece, harmonized inflation in October rose to 3.9 percent from 3.8 percent the previous month, more than one-and-a-half times the eurozone estimate of 2.2 percent. Greek harmonized annual inflation in September was the second highest in the EU. Concerns about inflation led the European Central Bank to hold its key interest rates steady at its regular monthly meeting on Thursday. High fruit and fuel prices were the principal driving forces behind October’s inflation rise, said Avramides. Fresh fruit and fuel, up by 12.3 percent and 0.8 percent, added 0.2 percentage points to headline inflation on a monthly basis. «Prices of non-processed food, especially fresh produce, seem to be getting out of control,» he noted. Fresh produce has been on an upward trend since an unexpected spell of bad weather hit Greece at the beginning of the year and at the end of summer. Rounding up as a result of the euro has also helped to sustain inflationary pressures far longer than expected. Economists said Greece’s high output growth has undoubtedly played a role in the inflationary picture. GDP is expected to grow by 3.8 percent this year and next. Fruit and fuel aside, other sub-components of the inflation index also showed no signs of retreating. The alcoholic drinks and tobacco sub-index and the hotel and restaurant categories posted the biggest price increases on a yearly basis, up by 6 percent and 7.3 percent, respectively. Nursing costs were up by 4.9 percent, education by 4.5 percent and services by 4 percent. Communications was the only sector to post a decline. Based on the latest figures, the government’s target of average inflation of 3.3 percent this year «is unattainable,» said Avramides. He said prices could move down to 3.3 to 3.4 percent in December, with inflation expected to average out at 3.6 percent. Avramides said there’s a danger the 2.5 percent inflation target set for 2003 in the draft budget could be out of reach as well. With primary spending projected to grow by 6 percent next year, the expansionary policy could fuel inflation, making it harder to bring down to the desired level of 2.5 percent, he said. This could also leave a 1.5-1.7 percent gap between Greece’s harmonized inflation and the average eurozone figure. «At this moment, 2.5 percent in 2003 is not attainable,» he said.