Anti-inflation crusade

Bank of Greece governor Nikos Garganas is worried by the rise in prices and by inflation, which is stubbornly sitting at double the EU’s average rate, gnawing at incomes and undermining Greece’s competitiveness and exports. The government has the same concern and the first joint meeting by Prime Minister Costas Simitis and PASOK’s new general secretary, Michalis Chrysochoidis, with the leadership of the Development Ministry was devoted to the problem of high prices. Sources said the meeting focused on the breadth of this problem and instances of price gouging, and it was decided that the Development Ministry would make plans and use all means at its disposal to press for lower prices not only of fresh produce but also of services, such as hotels, restaurants, insurance, and private clinics. An action plan for up to the spring of 2004 will include gentlemen’s agreements, institutional intervention, more inspections and the imposition of stricter fines for price gouging. Garganas, in a separate meeting with Simitis, conveyed the central bank’s fears, stressing that inflation remains one of the economy’s greatest problems. «I informed the prime minister of the indicators that we follow and our estimates are that in the first semester the growth rate of the economy will approach 4 percent (of GDP). This is a very satisfactory growth rate, if we keep in mind that in the eurozone the growth rate was near stagnation,» Garganas told reporters. Inflation, he said, «was higher than we expected, mainly because we had a large increase in the prices of fruit and vegetables. Our estimate is that from August onward there will be an easing of inflation.» Inflation, at 3.8 percent in June and May, will come, on an annual basis, to about 3.5 percent, he said. «Of course, our inflation rate is 1.5 percentage points higher than that in the eurozone, where we are expecting an inflation rate of about 2 percent. There are reasons for this divergence of 1.5 percent. One of them, the basic one, of course, is that Greece has a much higher growth rate than the eurozone,» Garganas said. «I think the average wage in Greece (and this is well known) in the last few years has increased at a faster rate than in the eurozone, as has the unit cost of work.» He said the unit cost could be reduced by an increase in productivity or by the increase in real wages being related more closely to the increase in productivity.