Filenews 24 February 2026 - by Theano Thiopoulou
Despite the significant de-escalation of domestic inflation during 2025 and its return to levels below the ECB's medium-term target of 2% (0.8% in Cyprus as opposed to 2.1% in the eurozone), the problem of high prices in Cyprus, and by extension the reduction of the real purchasing power of households, especially vulnerable ones, It continues to exist, albeit to a lesser extent. This is demonstrated by the study "Inflation and inflation in Cyprus: Recent trends and dynamics" signed by the technocrats of the Central Bank Kapatais Dimitris, Mithillou Maria and Papageorgiou Maria (the views belong to the authors and do not necessarily represent the views of the Central Bank) and is published on the blog created for the first time by the supervisory authority.
Although the concepts of inflation and high prices are closely related, they differ substantially. In the study signed by the three technocrats, it is stated that "inflation measures how fast the prices of goods and services (rate of change) increase in an economy, while inflation is the relationship between the price level – especially those goods and services that are essential for everyday life (e.g. food, energy, housing) – and the level of income. The level of inflation, which significantly affects the real purchasing power of citizens, is determined by comparing the current levels of price indices with previous time periods, in relation to the change in wages.
When inflation is elevated or preceded by a wave of increases, inflation is strongly felt, even if the rate of price increases slows down later. In other words, inflation can persist even in times of low inflation, as long as the prices of certain basic goods and services have already reached disproportionately high levels in relation to consumer income."
From the analysis that follows, they indicate that "it appears that the real economic pressure experienced by households depends not only on the evolution of prices, but also on the dynamics of their incomes". In the period 2021-2024, inflation (based on the Harmonized Index of Consumer Prices) in Cyprus, as in the euro area, increased significantly and recorded a cumulative increase of 16.5%, while in the euro area it was at even higher levels, reaching 18.8%. This development is largely attributable, as for the euro area, to strong inflationary pressures on goods and services, mainly as a result of exogenous shocks, such as the effects of the pandemic and Russia's invasion of Ukraine, compared to pre-pandemic levels. "Annual inflation in Cyprus then declined significantly, slowing down to 0.8% in 2025, well below the European Central Bank's (ECB) medium-term target of 2%, while the corresponding inflation in the euro area stood at 2.1%," they note.
However, they emphasize, the significant slowdown in domestic inflation in 2025 does not imply the elimination of the problem of high prices in Cyprus since the price level has already reached high levels compared to 2019 due to the cumulative high inflation that preceded it in previous years."
Private sector wage dynamics
At this point it is important to analyze, the columnists say, "the dynamics of private sector wages (excluding the sectors of public administration, education and health, and the information and communication sector), as well as the degree to which the purchasing power of households has been restored. Longitudinal statistical analysis shows that wage development correlates with inflation and productivity. This dynamic is also confirmed by historical data (1997 – 2010)". According to the data presented for the period 1997-2010, wages have increased, a development that is consistent with both inflation and productivity growth, which over time has been close to 1.5%. Over the same period, inflation was at a higher level of 2%, mainly due to VAT increases in the context of alignment with the European acquis.
During the period of the economic crisis in Cyprus (2012-2015), the study states, the relationship between wages and inflation changed, since not only were no increases but wage cuts were made, as well as the ATA was not given due to negative economic growth (2012-2014) and/or negative inflation (2014-2015). On the contrary, in the period 2020 – 2024, wages increased by about 2.9% per year or cumulatively 14.5%, while inflation in the same period reached, on average, 3.1% or cumulatively 15.4%.
At the same time, the study emphasizes that "the price of products becomes even more intense if we take into account that the prices of products with a greater weight in the expenditure of households, and especially of the vulnerable, record a greater increase than the general consumer price index". The aggregate HICP index recorded an increase of 17.1% in 2025 compared to the corresponding index of 2019. This large increase reflects significant double-digit changes in almost all key HICP index categories, in particular energy, food and services prices, which have a higher weight in the average consumer's basket.
Targeted state and private interventions are required
Tackling high prices, the study concludes, "continues to require a combination of targeted state and private interventions, which will mainly strengthen the disposable income of low-paid households, without undermining the competitiveness of the economy and fiscal discipline. These elements are essential for maintaining the economic stability and credibility of the state, helping to avoid crises and excessive debt. At the same time, it is necessary to strengthen the conditions for sustainable wage and productivity growth, including through investments in skills and new innovative technologies."
At the same time, they indicate that "as a small economy, it is necessary to continuously strengthen and modernize the institutions and mechanisms to safeguard competition, with an emphasis, among other things, on the promotion of transparency in price formation. In this context, it is worth noting that during the period 2022–2024, which, as mentioned above, was characterized by temporary inflationary pressures due to exogenous shocks, businesses absorbed part of the increased costs through the containment of their profit margins. Indicatively, margins averaged marginally negative levels, close to -0.5% during the period under review. This practice has helped to stabilise prices and limit the passing on of increased costs to consumers.
At the same time, the adoption by consumers of market research practices, through available tools such as the price observatory as well as the e-kalathi, enhance transparency and price competition between businesses and contribute to limiting price increases for the benefit of consumers."
