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Wednesday, November 29, 2023

Inflation in the daily lives of citizens

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The phenomenon of inflation is not Cypriot since most countries are plagued by increases in prices of goods and services, while it should be noted that some, mainly oil producers, increase their profits (in them possibly including Russia, which sees companies one after the other paying for gas in rubles, significantly strengthening its domestic currency).

Indeed, a large percentage of price increases in Cyprus are imported, since the country is energy dependent, if not entirely, overwhelmingly on fuel imports from abroad. Naturally, with oil prices rising in international markets, a chain of increases is being created. Added to this are the problems in the supply chain internationally, as a result of the inactivation of important production units for a long time due to coronavirus.

So questions arise as to whether we as a country could become more self-sufficient. In the field of energy, efforts are being intensified to promote Renewable Energy Sources, something that should have been done a long time ago, since we as a country were indifferent to the recommendations of experts and the European Union.

As far as goods are concerned, a grandfather's question is reasonable as to how the reduction of grain production in Ukraine is linked to the price of bread in Cyprus. Unfortunately, the primary sector, which once contributed up to 18% of GDP, has experienced a decline over time and the replacement of Cypriot products with imports. Gradually in recent years there has been an effort to re-establish the sector, but we also saw last week the challenges it faces. The most romantic, seeing the prices of perishables skyrocket, say they are ready to plant tomato plants and cucumbers in their garden.

Enhancing a country's self-sufficiency is not a direct measure of tackling inflation, but requires long-term planning, strategy and scrutiny, regardless of changes of government. Unfortunately, we remember changes in models and new areas when the country is going through crises.

As for the measures taken by national governments, they are temporary and are aimed at addressing the negative consequences of the phenomenon, and not inflation itself. Measures can be horizontal and cover businesses and consumers as a whole, such as indirect tax and excise tax cuts, or targeted, such as supporting population groups struggling with the products they need to survive. and goods. At the same time, it is expected that the controls will be intensified to avoid scandalous profits.

At the same time, rising inflation is combined with a slowdown in economies. If the rise in prices was solely due to increased demand, then this would lead to an increase in investment to boost production/supply and economic growth. Unfortunately, however, the high rate of inflation is created “artificially” through the uncertainty and distortions created by war and sanctions and anti-sanctions. As long as the same situation continues and often worsens, the forces of world trade can not act to find the new balance. Of course, now the separation of West and East is economically obvious and no one believes that we can return financially to pre-war times.

In this environment, the Central Banks, which seem to have been “trapped” in their own policies by providing asymmetric liquidity to the markets through quantitative easing programs that began as an emergency to boost economies and continue to be adopted for a second decade.

The Minister of Finance The US last week made it clear that Europe would suffer the most from the current situation, with the US and UK central banks being more aggressive in raising interest rates. Of course, the question arises as to whether Europe should literally follow the US in imposing sanctions, knowing that there is a bigger problem in it and the exchange rate of the euro against other currencies is slipping.

Source: politis.com.cy

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