Consumer prices continue to climb

The cost of consumer goods and services in Cyprus continued to climb in June, on an upward spiral for the past 18 months, rising to 111.34 points or 9% on an annual basis and 1.2% from the previous month.

This follows an 8.8% year-on-year increase in headline inflation in May and 8.6% in April, according to Cystat data, driven by household and energy costs.

The statistical service said that for January to June, the Harmonised Index of Consumer Prices (HICP) rose 7.3% from the same period last year.

Compared to June 2021, the largest annual changes in the basket of 805 goods and services were in housing, water, electricity, gas and other fuels (+23%), transport (+20%) and food and non-alcoholic beverages (+8.2%).

The January-June period saw a year-on-year increase in the same categories of +18.5%, +14.4% and +9.1%, respectively.

Compared to May 2022, the largest monthly change was recorded in transport, up 4.6%.

As regards the economic origin, the largest annual increase compared to June 2021 and monthly increase from May 2022, was in energy, up 43.6% y-o-y and +7.0% monthon-month.

This is in tandem with the spiralling cost of motor fuels from the beginning of the year, due to global shortages caused by the war in Ukraine, and a slowdown in supply driven by hesitation of oil producing nations to increase their output in order to replace the Russian crude and natural gas supplies.

In its summer forecast for Cyprus published last week, the European Commission warned that dented consumer confidence, in conjunction with rising inflation and higher interest rates, will shackle the economy in the second half of the year.

Private consumption is expected to be negatively affected by high inflation and the erosion of purchasing power.

However, it praised the Cypriot economy for exceeding expectations during the year’s first quarter, mainly as a result of the faster-than-expected recovery of tourism and the continuing expansion of exports of other services, notably business services and IT.

Therefore, Brussels has revised its forecast upwards for real GDP in 2022 to 3.2%, almost a percentage point higher than in the spring forecast, despite the rising cost of consumer prices.

The Commission said Cyprus will end the year with inflation at 7% before falling to a more manageable 3.3% in 2023. The bloc’s forecast is less optimistic than the Finance Ministry’s, which expects the year to close with a 4.5% inflation rate.

In the spring forecast issued in May, the Commission said Cyprus’ GDP growth will slow considerably as the war in Ukraine pushes inflation to unprecedented heights.

The Commission said headline inflation (HICP) would register a considerable increase of 5.2% in 2022, doubling its previous projection of 2.6%.

It’s projected to decline to 2.7% next year, significantly higher than the previous estimate.

“This is mainly due to exceptionally high oil prices, as Cyprus depends heavily on oil products.