Insider / ΚΥΠΕ
Inflation “more persistent than expected”, as described by the President of the European Central Bank Christine Lagarde in early February 2022, in Cyprus was 5.4% in January, according to data from the Statistical Service and is not expected to be adjusted until next year. year, according to experts.
The rise in fuel prices, the rise in prices for a number of other products, how the citizen experiences the rise in inflation, but also when it will decline, are questions that are answered by Dr. Michalis Michael, Professor of International Trade at the University of Cyprus and President of the Pancyprian Consumers Association Marios Drousiotis.
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Where does the accuracy come from
Dr. Michalis Michail attributes the increase in the prices of ores, fuels and transportation costs.
He said the pandemic had reduced spending on services and shifted consumption towards durable consumer goods. This led to an increase in demand for minerals: Iron, copper, etc., resulting in a rise in their price.
In addition, ports that were already operating at their maximum endurance levels before the pandemic were unable to increase their operating rate when demand for transportation increased, he said. He added that the pandemic had led to an increase in delays and a reduction in available ships, resulting in a significant increase in transport costs.
Finally, in terms of energy, he said that 2-3 years before the pandemic, investments mainly in the US in shale oil extraction had decreased, as the cost per barrel was very high and combined with low prices led to losses. Therefore the pandemic found them with low production and little ability to increase it, when demand increased. On the other hand, the OPEC + countries did not increase their production when demand increased, in order to keep prices high, he added.
It is noted that the OPEC countries agreed on February 2 to increase production to just 400,000 barrels per day. So no significant drop in oil prices is expected in the near future, which now hits $ 90 a barrel.
In addition, the uncertainty caused by geopolitical instability contributes to keeping prices high. As JP Morgan, Head of Global Commodity Strategy, points out, drop to $ 84 a barrel. But if there are disruptions in the flow of oil from Russia, in a context of low production from other regions, then the price of oil could easily go up to $ 120 a barrel. “If Russia's oil exports are cut in half, then the price of Brent oil is likely to rise to $ 150 a barrel.”
When are prices expected to fall?
Dr. Michael, answering a question about when prices are expected to stabilize or even fall, estimates that slowly supply will begin to increase. In addition, central banks appear to be raising interest rates to curb demand, he added. He said that England has already done this and the US is expected to do the same, while the European Central Bank will probably follow towards the end of the year, although at the moment it seems to be avoiding it.
In addition, he added that with the gradual lifting of the pandemic's restrictive measures, demand is expected to return to services (travel, leisure, etc.) and to reduce demand for durable consumer goods. This, he estimates, will lead to a reduction in demand for minerals and there may be some reduction in their prices.
Regarding energy, he said that OPEC + has some potential to increase its production, while, he added, if high oil prices continue, it will probably provide incentives for investment in shale.
Overall, he estimated that it would take about a year for supply and demand to adjust.
Accuracy in Cyprus
According to the President of the Consumers Association Marios Drousiotis, the Consumer Price Index showed an upward trend every month from the second half of 2021 until November 2021. In December prices seem to have stabilized, while in January 2022 there was a slight decrease of 0, 5% compared to December 2021. Nevertheless, a new wave of increases began to occur from January 10 onwards, he noted.
In terms of fuel, as indicated in a table by the Consumers' Association in Cyprus, until Wednesday, February 10, the retail price for Gasoline 95 recorded an increase of 0.327 cents / liter compared to January 2021. Respectively, Diesel recorded on February 10 an increase of 0.366 compared to January 2021 while for the same dates Heating Oil also records an increase of 0.333. From 1/1/2022 until Thursday 10 February, within 40 days, 95 petrol increased by 8 cents and diesel and heating oil by 5 cents.
According to Drousiotis, prices are expected to continue to rise until the end of March, to reach a total of 10 cents increase by 2022. impact a total of € 9 million on consumers. Respectively, if the increase of 8 cents is maintained for the whole year, the impact will be over € 70 million.
Increased fuel prices lead to a corresponding increase in the prices of basic necessities. According to the relevant table published by the Consumers' Association, fresh vegetables in January 2022 increased by 18.71% from the same month last year, vegetables 12.16%, flour and other cereals increased by 10.94%, the tea selling price increased by 8.72% compared to 2021.
In addition, the President of the Consumers' Association estimates that the continuous increases in fuel until the end of March, will lead in chains to additional increases in product prices from May.
Measures to deal with accuracy in Cyprus
The government can not do much, said Dr. Michael, given that Cyprus is a small economy and prices are a given. Only with market controls so that there is no unfair scandal with increases beyond justified, as well as with the supervision of the Competition Commission to avoid partnerships of companies to keep prices high. In addition, the government can provide social benefits for vulnerable groups, to address the accuracy, he added.
The President of the Consumers' Association stated that since May 2021, fuel prices have reached the levels they had before the pandemic and the imposition of restrictive measures. The increases observed in fuel since then have led to increased state revenues from VAT, which are estimated at € 16 million by the Pancyprian Consumer Association!
Mr. Drousiotis stated that these additional revenues of the state from the VAT on the increased fuel prices should be returned to the consumers, in whatever way the state deems more appropriate. “We tell the world to save, but the world has nothing else to cut,” he said.
