Inflation in Greece unchanged at 2.4% in June as government measures fail to impact food prices

Eurozone annual inflation stood at 2.5% in June 2024, down from 2.6% in May, aligning with analysts’ expectations. On a monthly basis, inflation increased by 0.2%. Core inflation, which excludes volatile energy and unprocessed food prices, eased slightly but held at 2.9%. Monthly core inflation rose by 0.3% compared to a 0.4% increase in May, primarily due to pressures in the services sector.

In the main components of euro area inflation, services recorded the highest annual rate in June at 4.1%, unchanged from May. This was followed by food, alcohol, and tobacco at 2.5%, down from 2.6% in May, non-energy industrial goods at 0.7%, unchanged from May, and energy at 0.2%, down from 0.3% in May.

Germany saw its inflation rate ease to 2.5% from 2.8%, faring better than the estimated 2.6%. Similarly, France’s inflation rate fluctuated at 2.5%, down from 2.6% the previous month.

“The inflationary threat has not passed”

ECB President Christine Lagarde stated that the central bank does not yet have sufficient evidence to conclude that the inflationary threat has passed. “We still face several uncertainties about future inflation, especially how the relationship between earnings, wages, and productivity will evolve and whether the economy will be hit by new supply-side shocks,” Lagarde said. “It will take time to gather sufficient evidence to be confident that the risks to above-target inflation have passed.” These comments suggest a preference for keeping borrowing costs unchanged at the ECB’s upcoming meeting.

Bank of Greece Monetary Policy Report: Inflationary pressures in Greece and the eurozone are identical

The Bank of Greece’s Monetary Policy Report for 2023-2024, presented last week, indicates that inflationary pressures on food in Greece over the past two to three years have been nearly identical to those in the eurozone.

Food inflation affects two main categories of goods: unprocessed foods (e.g., vegetables, fresh meat, eggs) and processed foods, alcoholic beverages, and tobacco products. These categories account for approximately 25% of the consumer basket as defined by the HICP. In Greece, food inflation ranged from 1.2% in 2021 to 9.7% in 2022, 9.9% in 2023, and 5.0% in the first five months of 2024.

In comparison, the average food inflation in the euro area was 1.5% in 2021, 9.0% in 2022, 10.9% in 2023, and 3.5% in the first five months of 2024. Over the previous decade (2010-2019), the average food inflation was 1.3% in Greece and 1.8% in the eurozone. Data from the Hellenic Statistical Authority and Eurostat show that food inflation trends in Greece and the eurozone are nearly identical. Any differences are attributed to the timing of inflationary pressures, with Greece experiencing the strongest pressures from 2023 onwards, while the eurozone faced them in 2022. Despite these variations, the trends are considered parallel.

Strong pressures on unprocessed foods in Greece, unlike the rest of the Eurozone

An analysis by the Bank of Greece highlights a significant difference in food inflation between Greece and the Eurozone: in Greece, the strongest pressures were on unprocessed foods, whereas in the Eurozone, they were on processed foods. Following Russia’s invasion of Ukraine in February 2022 and up until May 2024, unprocessed food prices in Greece increased by an average of 10.2%, compared to 8.7% in the Eurozone and 9.6% in the EU-27. In contrast, processed food prices rose by 8.9% in Greece, 9.4% in the Eurozone, and 10.2% in the EU-27.

Despite these differences, the overall price increases are similar and closely aligned. The Bank of Greece notes the persistence of food inflation in both Greece and the Eurozone. During periods of low inflation (e.g., from mid-2012 to the end of 2020), food inflation was less persistent than general inflation. However, in periods of high or rapidly rising inflation (such as from mid-2021 to late 2023), food inflation proved more persistent.

Bank of Greece analysts attribute this persistence to various factors influencing food inflation, such as increases in energy prices, climate change, high demand, and rising wage costs. While each factor alone is volatile and less persistent, their cumulative and simultaneous impact leads to greater persistence in food inflation. The period between 2021 and 2023 saw a rise in prices, driven by a faster demand recovery and the significant effects of the Ukraine war on energy, grain, raw material, and fertiliser prices.

The cumulative effect of these factors explains the greater persistence of food inflation over the past three years. Additionally, new uncertainties are emerging, such as climate change and its resulting volatility in food prices.

Government measures had minimal impact on inflation

Looking ahead, the Bank of Greece remains pessimistic, noting that “uncertainty about the future course of food inflation is great.” The analysis reveals that government measures in Greece had a minimal impact on food inflation. The evolution of food prices in Greece is similar to that of the Eurozone, where no caps were imposed on business profit margins, nor were heavy fines levied on suppliers of goods to the Greek market.

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