By Chrysostomos Tsoufis

Last week, Eurostat announced that inflation in Greece in June was the third lowest in the Eurozone, behind only Luxembourg and the countries of Belgium and Spain which are tied for 2nd lowest.

However, the state budget office in the Parliament is sounding the alarm and not (only) because food inflation continues to gallop at a double-digit rate. The concern of Mr. Frangiskos Koutentakis and his staff is mainly caused by so-called structural inflation, i.e. inflation that does not include energy – which has turned into a negative sign – and processed products, which are two very volatile categories. And data shows that headline inflation in Greece jumped to 8.1% in May from 4.6% in the same period last year. That is an increase of 76%.

The phenomenon concerns all of Europe

This phenomenon does not only apply to Greece, but runs through the entire Old Continent. GPKB brings to light an IMF study according to which in the last year the biggest “responsible” – by 45% – for the rise in inflation is none other than the so-called greed inflation which we have analyzed at . In essence, businesses are “accused” of keeping their product prices high in order to increase their profits. Italy’s central banker, Fabio Panetta himself, said that while production costs are falling, retail prices are rising and business profits are rising with them. By 40% the responsibilities are shared in the increase in the prices of imported products and by 25% in the increase in wages. Taxes have a negative effect, i.e. they reduce inflation.

Having found why things happen, now the cure must be found. The government has announced that it is extending the market pass in the first phase for 3 months and the household basket until the end of the year. In fact, government spokesman Petros Marinakis hinted that there will also be a surprise measure to combat accuracy in the Prime Minister’s programmatic statements on Thursday. And the government knows that these measures are not enough to solve the problem.

The “key” to the reduction according to the IMF

According to the IMF, the key to reducing inflation in time and to the desired level in the Eurozone – i.e. to 2% by the end of 2025 – is held by businesses.

Given that the prices of raw materials will continue to decrease – as they largely do – and that productivity will remain stable, how much companies are willing to give larger increases without increasing the prices of their products is the central question.

-In the scenario of wage growth over the next two years of 4.5%, the impact of business profits on inflation growth should decline to the level before the Russo-Ukrainian war.
-In the scenario of a 5.5% wage increase, the effect on business profits should return to the level of the mid-90s !!!!!

If businesses show “reluctance” then in order to achieve the goal of reducing inflation it will take even more time, more interest rate increases and thus, among other things, more “pain” for borrowers and a more intense “flirtation” with recession.