In just 12 months (September '25 – September '26) Cyprus made an unprecedented negative inflationary jump, passing from absolute price stability to the first steps of European inflation, with the gap from the Eurozone average increasing month by month.
In September 2025, Cyprus was the... pride of the Eurozone, being the only country with zero inflation (0.0%). Today, September 2026, the picture has been completely reversed, with the price index having skyrocketed to 5.2%, where it was in August and the economy recording the largest price acceleration in the whole of Europe, now being in the top three member states with the fastest rate of price increase.
The timing of the announcement of these negative data by Eurostat with the announcement, last Wednesday, of the new government consumer support measures and the almost simultaneous publication of the report of the Fiscal Council creates a worrying scenario.
With its report, the Fiscal Council deconstructs the policy pursued in some places, characterizing horizontal tax breaks as an expensive and dangerous "2022 recipe", which simply temporarily hides inflation, only to return it violently at the end of the measures. He clarifies that the permanent way out to solve the problem lies in an "Ideal Policy Framework" of five conditions, which transforms support from a decision of the moment into targeted domestic energy autonomy.
The inflationary shock
Yesterday's announcement of the harmonized price index by Eurostat highlights the magnitude and speed of the Cypriot inflationary shock. The country now faces the third-highest inflation rate in the European Union, behind only Lithuania (6.1%) and Bulgaria (5.6%), while annual inflation in the euro area stood at 3.8% in September, up from 3.2% in August.
While strong economies such as Germany (3.3%) and France (3.4%) managed to contain pressures below the 3.5% barrier, Cyprus deviated significantly from the European average.
There is one more important fact, looking at the data over time. Countries such as Estonia and Latvia, which were facing a serious problem last year, achieved a significant de-escalation, while Cyprus was following the exact opposite - upward - course. Notably, Estonia managed to bring inflation down to 3.0% in September 2026, from 5.3% in September 2025. Latvia, from a 4.2% harmonized inflation rate in September 2025 fell to 2.9% in September 2026.
The slap in the face of the Fiscal
The report of the Cyprus Fiscal Council (IICB), entitled "Inflation in Cyprus 2025-2026 – From the energy shock to a fiscally prudent response, temporary, targeted, with a clear exit", sharply criticizes the measures announced by the Government on Wednesday, September 30, to relieve citizens from inflationary pressures.
The numbers are relentless and, as noted, the tax cuts in August 2026 contained inflation by about 0.5 points (5.2% compared to 5.7%). Worse, when these measures expire (in November 2026 for fuel and March 2027 for electricity), inflation will mechanically soar for the next 12 months.
The Council warns that "tax cuts hide inflation today and return it when they expire". In addition, it is pointed out that the expiration of these measures is expected to cause a mechanical increase in the price index, so the expiration must be planned in advance and done gradually, so that the fear of a sharp rise does not lead to new extensions.
Permanent solution
The analysis of the Fiscal Council records the fact that within eight months Cyprus went from the last place in the EU to the 3rd highest (in the report the last month of data is August). The energy sparked the rise, but the pressures widened on services, the report said. One of the important elements of the report is the message "energy costs cannot be solved permanently with tax interventions and permanent solutions are required.
Specifically:
Benefits: Lower and more stable energy costs, less transmission of external disturbances, fewer emissions.
Risks: Implementation delays, geopolitical obstacles (GSI), risk of execution of large projects (Vasiliko).
Fiscal Impact: One-time investment expense, amortized through lower energy costs, rather than a recurring loss of revenue. Utilization of European resources.
The "ideal" policy framework
In order to stop the vicious circle of expensive and ineffective subsidies, the Fiscal Council does not just criticize, but submits a specific, institutional proposal. The "Ideal Policy Scenario" can only work effectively if five strict conditions are met, which transform support from a "decision of the moment" into a transparent and automatic system:
Data: Monthly publication of the reference price and the deviation for fuel and electricity, based on Eurostat/HICP data and the Weekly Oil Bulletin of the European Commission.
Beneficiaries: Register that already exists: EEE, vulnerable EAC consumers, low-income pensioners. Payment from existing channels
Rules in advance: Threshold, duration and withdrawal are legislated in advance, not by decisions of the moment.
Financial envelope: Ceiling costs set in advance, within the net expenditure trajectory of the EU's new economic governance framework.
Independent evaluation: The IICB assesses the targeting, costs and early withdrawal ex-post.
