Filenews 14 August 2024 - by Theano Thiopoulou
The good news is that the rate of increase in inflation continues to decline gradually, mainly due to the easing of exogenous supply-related pressures, also in combination with the effects of monetary policy mainly implemented by the European Central Bank.
But there is also something that spoils the positive picture, according to the interim report of the Fiscal Board. The process of diffusion of pressures does not seem to be complete, as non-tradable services, such as catering, continue to record inflation rates that are higher, both in relation to the general trend within the Eurozone and in relation to domestic inflationary pressures.
In focus, based on the explanation given by the Fiscal Council, inflation rates remain higher than 5.8%, while for social care and protection services they were at 4.5%. Beyond non-tradable services, the prices of certain foodstuffs (fruit and vegetables, rising 7.7%), fuel (10.6%), and transport (10.9%) also continue to exert pressure on the general price level.
Inflationary pressures in the above services sectors are expected to continue, also due to the maintenance of consumer demand at high levels. As regards core inflation (excluding energy and food), it is expected to move lower than the overall indicator. In June, overall inflation stood at 3.1%, compared with 2.5% in the euro area as a whole.
Excluding energy and food, the rate stood at 2.5% (2.9% in the euro area). This picture is expected to continue, with core inflation lower than the headline indicator. The expected persistence of the spread between aggregate and core inflation is attributable to a combination of the monetary policy impact of the European Central Bank on the one hand and the ongoing upward pressure recorded, mainly in non-marketable services, on the other.
The authors of the interim report agree "with the European Commission that ATA has exerted upward pressure on both consumption and core inflation. Moreover, the upward trend – albeit small – in real wages after a decade of low wage and productivity growth contributes to pressure on categories such as low-cost non-market services and everyday goods ( such as fruit and vegetables, fuel and transport)'.
Above and social services
Concerns about price increases spill over into another area, which concerns social protection for specific groups.
The report refers "with concern to the continuation of the upward trend in the prices of social protection services, such as home care for the elderly and people with disabilities, care homes and the like, where inelastic demand may make it possible to increase the profit rate of companies operating in these sectors, in addition to increases in the cost of providing services (e.g. payroll and energy).
Although these increases do not translate into fiscal or macroeconomic pressure, their social dimension is significant and, in the absence of measures, the pressure for a political response to support the social groups affected is increasing.
While this support is necessary, at the same time it increases the political risk of decisions that may cause macroeconomic distortions."
