European inflation falls, and Greece’s economic fortunes are – slowly – improving

The Greek economy is in a far better state than it used to, but there’s still work to be done.

A woman seen at a supermarket in Greece. Photo: AMNA

5 December 2023 5:06pm

In November, inflation dropped to 2.4 per cent, surpassing optimistic expectations, especially compared to the 2.9 per cent in October.

The current inflation level in the Eurozone is the lowest since July 2021, during the late stages of the pandemic and before the Russian-Ukrainian war.

Despite this encouraging data, forecasts of the eurozone and the wider European economy entering recession by 2024 are strengthening.

Consequently, there is an increasing likelihood of an ECB rate cut in the first two quarters of the next year.

In November, the Greek economy’s inflation also notably decreased from October, falling to 3 per cent from the previous 3.8 per cent, while Greek core inflation dropped to 2.8 per cent from 3.6 per cent.

This decline can be attributed, firstly, to relatively low energy costs, particularly after confirmation that the conflict between Israel and Hamas isn’t escalating geopolitically.

Secondly, there is a slowdown in food production costs.

Core inflation, excluding energy and food price fluctuations, also decreased to 3.6 per cent in November from 4.2 per cent the previous month.

The ECB relies on this indicator to form a more confident view of the eurozone economy’s performance.

At first glance, the Eurozone appears to be unexpectedly nearing the target of returning inflation to 2 per cent.

However, despite encouraging data in November, the ECB is not ready to proceed with a rate cut.

It believes that the broader instability of the current political year doesn’t create the conditions to rule out a possible new inflation crisis.

The Ministry of Development, having introduced the Permanent Price Reduction initiative following the successful Household Basket, aims to reduce prices on over 1000 products and has imposed a cap on the profit margin.

These measures intend to continue protecting Greek consumers as the challenge of food inflation seems to be gradually coming to an end.

Yet, considering the ECB’s reluctance to lower interest rates, Greece needs to prepare more short-term measures to alleviate the high cost of living.

Although unemployment in Greece has fallen below 10 per cent for the first time in over a decade, the Greek minimum wage remains one of the lowest in the EU.

The wage increases announced by the government for 2024 might not be sufficient to cover rising costs if they persist into the next year.