Inflation in Greece: The New Rise and Consequences

The looming – according to some analysts – and even artificial – according to Stournaras – impending rise in inflation in Greece brings anxiety but also collateral… benefits. On Friday, Hellenic Statistical Authority-ELSTAT is expected to announce the detailed inflation data for the month of October 2023, where the contribution of food, which is the biggest “thorn” of the last several months, will be reflected

However, the preliminary figures for October inflation from Eurostat are particularly problematic and show that the wave of inflation has not only not stopped, but will continue and even more strongly, mainly in relation to food, although some market factors estimate that there will be a de-escalation.

Based on the European Statistical Service, in the Eurozone the price index fell below 3%, while the annual harmonized consumer price index in Greece rose to 3.9% compared to 2.4% in September and 3.5% in August.

At a non-harmonized level, i.e. based on ELSTAT data, annual inflation in Greece slowed to 1.6% in September compared to 2.7% in August and 2.5% in July.

The new rise

If the assessment of the head of the Central Bank of Greece Yannis Stournaras, who gave an interview in the framework of the “Circle of Ideas” conference, is valid, then there will be a new rise in the consumer price index for a while, until there is a permanent de-escalation. In such a case, it is expected that there will be adverse consequences for both households and small and medium-sized enterprises.

After all, the “rally” without end in price risess during the last year caused a decrease in the real incomes of  households. It is characteristic that the real disposable income of Greek households will decrease by 2% in 2022, based on ELSTAT data.

The effect on consumption

At the same time, the effect of inflation on consumer demand is now becoming more and more intense, with the volume of retail sales registering a noticeable decrease in August this year compared to a year ago, whether it is sales in supermarkets, or sales in appliances.

According to the data announced a few days ago by the Hellenic Statistical Authority (ELSTAT), the turnover index in retail trade increased in August 2023 compared to August 2022 by 2.4%.

At the same time, however, sales volume fell by 3.6%, which essentially proves that turnover growth is inflationary. This is particularly evident in the case of food stores, where the turnover recorded an increase of 8.4%, while the volume index decreased by 0.7%.

Citizen support questions

The above raises questions as to whether there will be a need to support citizens, as long as the extended inflationary cycle continues. However, the economic staff has emphasized in every way that the objective of achieving a primary surplus in 2023 at 1.1% and 2024 at 2.1% will not be shaken, which creates limitations, which was also shown by the intention of government to create additional tax burdens on the self-employed. Essentially, Mr. Stournaras’ position on the review of tax exemptions also moves on this wavelength.

At the same time, the ongoing war in Gaza may create new economic data, which may further adversely affect the Greek economy and obviously inflation. A new big shake-up in energy prices internationally could create new negative data on inflation.

The benefits to the economy

However, high inflation has also worked positively for the Greek economy. First of all, it has given a big boost to tax revenues, resulting in continuous overshooting of targets, although there was a dip last September, which probably also shows citizen fatigue.

It is characteristic that the excess of VAT revenues in relation to the target reaches 779 million Euros in the nine months. However, tax revenues fell below the threshold in September, meaning that there is a major test of citizens’ endurance. According to the final data of the Ministry of National Economy and Finance, tax revenues amounted to 44,916 billion euros, increased by 3.089 billion euros or 7.4% compared to the target included in the introductory report of the 2023 Budget.

In addition, rising prices appear to lead to an increase in nominal GDP, which work in conjunction with a reduction in public debt. And in fact, future projections show a rapid de-escalation of public debt in terms of Greek GDP, especially at a time when the 2018 agreement between Greece and institutions for its restructuring is in force.
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