How much is stagnant inflation frightening the Ministry of Finance?

By Tasos Dasopoulos

The situation of high inflation in the fuel since the last quarter of 2021, which intensified with the war in Ukraine, together with the inflation in food, increase the voices that now speak about the possibility of stagnant inflation in Europe and maybe in Greece.

The possibility of living again in the 70’s with high inflation and low growth have been pointed out by investment banks, leading economists and recently the Governor of the Bank of Greece Mr. Giannis Stournaras, who is used to appearing optimistic in the face of any difficulty, but also Michalis Sallas.

The indications may show, but they are not similar to those of 1970, emphasizes a competent source of the Ministry of Finance. At present – he explains – there is no scenario from a European or international organization – the ECB, the Fed or any other central bank – that does not predict the medium-term de-escalation of inflation in 2023 and 2024. For the Eurozone, the ECB, although it has revise estimates several times, insists on the scenario that in the medium term inflation will fall to the ideal levels of 2%.

The same source recalls that the crisis of the ’70s was characterized by inflation of more than 13% for a decade, and at the same time low growth and high unemployment. Today, inflation in Europe and in the world is cyclical. It appeared after the opening of the economies due to the restrictions on the coronavirus and it would have already started to decline, if we did not have the bad development of the war in Ukraine and the great dependence of Europe on the Russian natural resources.

The invasion of Ukraine is undoubtedly a factor of uncertainty, which keeps prices high, but can not cause permanent problems. But once the war is over, prices will fall and why the market will find a balance between supply and demand and why everyone will look for alternative ways to meet their needs. Even Russia’s dependence on natural resources will find its solution but it will take some time.

What is happening in Greece

As far as Greece is concerned, inflation – which reached 8.9% in March in terms of national index – is 100% imported, the same source notes. Since, therefore, it is not due to distortions of competition within the country, as was the case until 2012, as soon as international prices escalate, it will be at low levels. Even with a small time delay according to the Greek “tradition”.

On the other hand, the growth of the economy is in a steady phase of growth. After a 10-year recession or marginal growth, the recession of 9% in 2020 came mainly due to the large losses of tourism that produces 18% of GDP. But it took only a year – most of which was due to the health crisis – to cover almost all of the losses caused by the pandemic, reaching 8.3% growth by the end of 2021. At the present time, from 2022 to 2027, the economy has to benefit from € 70 billion in Community funds secured in 2020. This money is expected to fall into the economy in the coming years, mobilizing at least another € 30 billion. private resources and supporting a positive growth rate. Additional impetus to growth will be given by the reforms that will be implemented through the Recovery Fund, which will increase GDP for up to 10 years.