Despite the significant de-escalation of domestic inflation during 2025, inflation seems to be gaining permanence and the problem persists, affecting the reduction in the real purchasing power of households and especially the vulnerable.
Things are getting worse after the recent increases in motor and power fuels, which will inevitably be passed on to the cost of many other products and services.
A study published on the blog of the Central Bank of Cyprus, entitled "Inflation and inflation in Cyprus: recent trends and dynamics", signed by Dimitris Kapatais, Maria Mithillou and Maria Papageorgiou, shows that, despite the significant de-escalation of the growth rate of domestic inflation during 2025 and its return to levels below the ECB's medium-term target of 2% (0.8% in Cyprus, in contrast 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 – and especially the vulnerable – continues to exist. "This is due, as in the euro area, to the cumulative increase in domestic prices over the last five years, mainly due to exogenous factors/shocks (negative effects of the pandemic and geopolitical tensions).
This development has only been partially offset by wage increases and government compensatory measures during the period under review," the report notes. The study shows that the real financial 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 well 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 subsequently declined significantly, recording an increase rate of 0.8% in 2025, well below the European Central Bank's medium-term target of 2% (while the corresponding inflation in the euro area stood at 2.1%).
However, the researchers note, 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.
What is the role of rising wages in restoring the purchasing power of households, the study also attempts to answer. It should be noted that the longitudinal statistical analysis shows that wage development is correlated with inflation and productivity. "This dynamic is also confirmed by historical data (1997 – 2010). Specifically, in the period 1997-2010 wages increased, a development that is consistent with both inflation and productivity growth, which over time has fluctuated close to 1.5%.
At the same time, inflation was at a higher level of 2%, which was mainly due to VAT increases in the context of alignment with the European acquis."
However, it is indicated in the study that "during the period of the economic crisis in Cyprus (2012-2015), 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%".
Annual inflation in Cyprus subsequently declined significantly, recording an increase rate of 0.8% in 2025, well below the European Central Bank's medium-term target of 2% (while the corresponding inflation in the euro area stood at 2.1%).
However, the researchers note, 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.
What is the role of rising wages in restoring the purchasing power of households, the study also attempts to answer. It should be noted that the longitudinal statistical analysis shows that wage development is correlated with inflation and productivity. "This dynamic is also confirmed by historical data (1997 – 2010). Specifically, in the period 1997-2010 wages increased, a development that is consistent with both inflation and productivity growth, which over time has fluctuated close to 1.5%.
At the same time, inflation was at a higher level of 2%, which was mainly due to VAT increases in the context of alignment with the European acquis."
However, it is indicated in the study that "during the period of the economic crisis in Cyprus (2012-2015), 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%".
It is pointed out that the price increases become even more pronounced 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.
