Inflation is easing, but prices remain high

By Tasos Dasopoulos

The economic staff is now focusing its attention on the price level and mainly on its effect on incomes, the real economy and the GDP, for the planning of the new package of business and household support measures which will be announced next month.

The normalizing trend in the harmonized index of consumer prices, which reached 11.3% in July, from 11.6% in June, was the result of a “base effect”. That is, of the fact that in the same month of 2021, inflation was 1.1% and this year’s July index was measured as the difference between the increased prices of the previous July and the prices in the same month this year.

However, the situation in the real economy, i.e. the income of households and businesses, is more clearly reflected in the evolution of prices. A prime example is the price of natural gas, which from 28 euros per thermal megawatt hour in July 2021, has reached 242 euros today. That is, it is almost nine times higher.

Accordingly, the wholesale price per megawatt hour of electricity, which is linked to natural gas, from 100 euros in July 2021 has now reached 420 euros. And in this case, we have an increase of about 320%

The price of crude oil, from 60 dollars per barrel last July, reached 92-93 dollars per barrel this July. And in this energy product we had an increase of almost 35%. As for the price of gasoline, which has been on fire since the beginning of the year, it is determined by another price platform, since gasoline itself, although a product of crude oil, follows its own rules. In Greece we have as a base the price of the Southeastern Mediterranean.

Increases in food

In the second hot area of ​​inflation, that of food, up until the end of last February, supply chain anomalies and shortages of certain items were the main cause of price increases.

After the outbreak of the war in Ukraine, the revaluations were mainly caused by the lack of cereals, vegetable oils and fertilizers. These shortages pushed up the prices of meat (due to increased feed and energy), fresh vegetables and fruit (due to energy and fertilizers), milk and eggs, for similar reasons.

The food index for unprocessed products had for July, on an annual basis, an increase of 11.1%, according to Eurostat. Based on the national consumer price index, the increase in the “food and non-alcoholic beverages” group for July reached 13%. The difference is mainly because fresh food is weighted more heavily for “national” inflation.

Which prices will go down?

Amidst the uncertainty that Russia has caused, with the hybrid war it has unleashed across Europe with the weapon of natural gas, there is also – a little – good news.

Following the agreement to restart grain exports from Ukrainian ports, grain futures have begun to retreat.

However, from this point until we see a difference in price on the bakery or supermarket shelf, it will be 2 to 4 months, as the stocks bought at high prices will have to be used up first.

A second hope, there is from oil, if finally the oil producing countries (except Russia) are convinced to increase their production on a permanent basis.