Edition: International | Greek
MENU

Home » Analyses

The unequal battle of inflation and the appropriate sustainable solution

The forecasts for the development of inflation in our country are not particularly encouraging as it will continue its downward trend for the current year

By: EBR - Posted: Friday, March 22, 2024

At this point, it is worth reflecting and returning to the analysis and study of the behaviour of the Consumer who has the inalienable and sovereign right to freely choose one among many other alternative products.
At this point, it is worth reflecting and returning to the analysis and study of the behaviour of the Consumer who has the inalienable and sovereign right to freely choose one among many other alternative products.

by Antonis Zairis*

The forecasts for the development of inflation in our country are not particularly encouraging as it will continue its downward trend for the current year, but above the target of 2% set by the European Central Bank until 2026. Its steady deceleration is expected to occur from 2025 onwards taking into account of course those components that make it persistent and these are : First, the two (2) ongoing wars in Eastern Europe and the Middle East and the behaviour of the Xouthi rebels which are a source of multiple problems in the smooth flow of the supply chain p. e.g. possible price increases in pasta, bakery products due to reduced supply of cereals from Russia and Ukraine , price increases in dairy products due to increased costs of feed, fertiliser etc. As far as container traffic via the Red Sea is concerned, 30% of world trade and about 15% of oil and gas is handled. Secondly, the evolutionary trend in oil prices, which increased by more than 25% after OPEC’s announcement, as early as mid-2023, of reduced production, which implies increased demand and upward price compression (it should be mentioned here that there has been a significant deceleration of oil, gas and coal prices from the highs of 2022). Third, the development of the El Nino phenomenon, which has started in mid-2023 and is bound to have a negative impact on production in many product categories.

All the previous concerns regarding the risks of inflationary pressures for 2024 are also mentioned by the OECD in its latest report (Interim Economic Outlook).The fact is that the Greek economy was running with inflation above 20% in the period 1980-1986 and even in double digits from 1986 to 1994. The current tightening of monetary policy by the ECB with the "weapon" of raising interest rates has poor results for the simple reason that both energy and basic foodstuffs are inelastic choices for consumers, whereas restrictive monetary policy has obvious results and pays off in the case of a reduction in structural inflation excluding food and energy e.g. in the USA and Great Britain. The great misfortune for the European Union and for our country was the heavy dependence on Russian natural gas whose prices at some point in the 2022 crisis were ten times higher than those in the USA.

In addition, it is worth taking into account in any analysis of inflation in our country that there are products such as food that do not deflate easily or even the market of imported electrical goods that during the pandemic period experienced increases due to high transport costs and also other products from the clothing and footwear market that deflate relatively easily. On the other hand, however, the key growth variables of the Greek economy continue to remain satisfactory: Firstly, with an anaemic but still growing consumption (1.3% for private and -0.8% for public) since inflation in one way or another has affected disposable purchasing income. Secondly, with an increase in gross investment in the economy (+11%) and a slight decline in unemployment. Investment growth for 2024 is projected at 5.2% and here the role of the Recovery Fund in the rapid disbursement of resources to support investment is particularly critical; and Third, with exports growing at 2.6% as a result of the stabilizing situation in international trade. In conclusion, we would conclude that the problem of inflation and price inflation is insoluble and will continue to plague us. It is an unequal battle which is basically due to two (2) main reasons: on the one hand, because the majority of the inelastic products traded in the Greek market, e.g. food products, are imported, thus acting as "prey" to price changes and fluctuations in the international market and on the other hand, because the demand for these basic items has remained unabated, thus having little or no effect on the prices of the products offered in the market.

At this point, it is worth reflecting and returning to the analysis and study of the behaviour of the Consumer who has the inalienable and sovereign right to freely choose one among many other alternative products. If this is established and strengthened as a dominant strategic choice then the invariant laws of supply and demand will inevitably apply and obviously the reduced demand for some products will necessarily lead to a de-escalation of high prices.

*Deputy Vice President of SELPE & Assistant Professor of Business Administration at the University of Paphos, Cyprus & member of the World Economic Forum (WEF)

READ ALSO

EU Actually

‘Free debate and exchange of views is vital. Even when you disagree’.

N. Peter KramerBy: N. Peter Kramer

Hungarian Prime Minister Viktor Orban will speak today at the National Conservatism Conference in Brussels, a two-day far-right conference

View 04/2021 2021 Digital edition

Magazine

Current Issue

04/2021 2021

View past issues
Subscribe
Advertise
Digital edition

Europe

Migration will decide the EU elections: True or false?

Migration will decide the EU elections: True or false?

The European elections will be won or lost on the issue of immigration

Business

Artificial intelligence and competitiveness in the retail sector

Artificial intelligence and competitiveness in the retail sector

The importance of AI and machine learning in the retail market is confirmed by the projected dramatic growth of AI services worldwide, which will skyrocket from $5 billion to $30 billion by 2030

MARKET INDICES

Powered by Investing.com
All contents © Copyright EMG Strategic Consulting Ltd. 1997-2024. All Rights Reserved   |   Home Page  |   Disclaimer  |   Website by Theratron