The Governor of the Central Bank of Cyprus (CBC), Christodoulos Patsalides, warns of prolonged inflationary pressures and increased risks of new price increases, pointing out that the energy shock continues to affect the economy. In Cyprus, inflation remained at a high level of 5.2% in September, with energy prices recording an increase of 21% and services prices of 7.1%.
In a statement on yesterday's decision by the European Central Bank to keep key interest rates unchanged, the CBC Governor notes that geopolitical tensions and ongoing energy price increases are worsening the inflation outlook.
At the same time, it underlines that, despite the resilience that the Cypriot economy continues to demonstrate, the risks for further inflationary pressures remain elevated, making it necessary to closely monitor developments.
Inflation in Cyprus at 5.2%
Particular reference is made to the course of prices in the Cypriot economy, where energy and services continue to be the main sources of inflationary pressures.
Despite maintaining headline inflation at 5.2%, core inflation, which excludes energy and food, eased to 3.9% in September, from 4.5% in August, indicating a weakening of underlying price pressures.
According to the Governor of the CBC, the economy continues to be supported by strong domestic demand, favourable employment conditions and sound public finances.
However, the persistence of inflationary pressures and heightened international uncertainty make it necessary to maintain prudent economic policies.
Inflation in the Eurozone at 3.8%
At the Eurozone level, inflation rose to 3.8% in September, from 3.2% in August, with the main factor being the further rise in oil prices.
The CBC Governor points out that, so far, the indirect effects of the energy shock on the rest of the economy remain relatively limited, while no substantial secondary inflationary effects through wage increases are recorded.
At the same time, the tightening of financing conditions, as a result of previous interest rate hikes and the rise in government bond yields, has a restrictive effect on the diffusion of price increases.
Despite the resilience of economic activity in the euro area, heightened uncertainty and tighter borrowing conditions are expected to weigh on growth rates in the coming period.
Why the ECB kept interest rates unchanged
Referring to the decision of the Governing Council of the ECB, the Governor of the CBC explains that keeping interest rates at the current levels was considered appropriate to manage the uncertainty.
The ECB remains committed to returning inflation to its 2% medium-term target, while developments in prices and economic activity will continue to be assessed.
The shield of the Cypriot economy against high prices
The Governor of the CBC highlights four factors that enhance the ability of the Cypriot economy to cope with the consequences of inflation.
These include the strong labor market, the maintenance of fiscal space for targeted support measures, the capital adequacy and liquidity of the banking system, as well as the expansion of the productive base with the development of dynamic sectors, such as information and communication technologies.
He also points out that the country's recent credit rating upgrades enhance its attractiveness for foreign investment.
In conclusion, he emphasizes that the adoption of prudent economic policies is a key prerequisite for protecting the economy from the effects of inflation, emphasizing the need for fiscal and economic discipline amidst increased international risks.
