Rising inflation prompts concern about price hikes

Greece’s inflation rate has risen to its highest in more than two years amid hikes in oil and electricity charges and has prompted fears at the Economy and Finance Ministry that it could lead to a round of price increases and demands for higher wages. The National Statistics Service (NSS) said yesterday that consumer prices rose 3.9 percent in November from 3.1 percent the previous month. It is the third straight month of accelerating inflation and 3.9 is the highest the rate has reached since September 2005. In its draft budget for 2008, which was unveiled last month, the government had forecast 2.7 percent inflation for this year and 2.6 percent next year. «The 3.9 percent increase in the November consumer price index relative to the 3.1 percent rate in October was mainly due to the increase in the price of heating oil,» said the NSS in a statement. The price of heating oil has increased by 16 percent this winter and consumers have also been hit with a hike in electricity prices. Greece is particularly vulnerable to rises in oil prices, as it is heavily reliant on oil for heating and electricity production, more than other European Union countries. The main concern for the government is that rising inflation could prompt more price hikes in a range of products that would provide opposition parties and other critics with fodder to attack the government. Also, the Economy and Finance Ministry is concerned that this could lead to series of demands for higher wages from workers, thereby seriously disrupting the government’s budgetary plans. Finance Minister Giorgos Alogoskoufis was determined to dampen speculation and allay fears that Greece can expect some economic turbulence ahead. «This inflation has been imported and what we need to make sure of is that this imported inflation does not turn into a domestic problem,» Alogoskoufis told reporters. «It is an issue that is not just worrying to us but all of our European partners as well and I believe that with the mechanisms we have at our disposal, we will be able to limit any rises that are caused by inflation so that they are temporary and will not have a permanent impact on the income of Greeks.» The NSS has forecast that inflation will not rise above 3.9 percent in December if there are no further hikes in oil prices. The increase in electricity prices is expected to add 0.1 percent to the inflation rate next month. If the NSS is correct in its prediction, then average inflation for 2007 will be 2.8 percent, 0.1 percent above the government’s prediction.