Inflation Returns to Greece After Three Years of Falling Prices

  • December increase in consumer prices is first in 34 months
  • Food, restaurants, hotels drive rise after sales-tax increase

Greek inflation returned in December, ending almost three years of non-stop price declines during the country’s economic and political crisis.

The 0.4 percent increase, based on an EU measure, followed a 0.1 percent drop in November and marked the first positive reading since February 2013, according to a statement from the Hellenic Statistical Authority. The median estimate of four economists in a Bloomberg survey was for a 0.2 percent increase last month.

While the positive reading is one more incremental step on the country’s return toward normality after one of the most turbulent periods in its economic history, the price increases were driven by new sales taxes. Those were introduced in August as part of the country’s third bailout agreement.

“The increase is almost exclusively due to the increase in indirect taxes, which went from 13 to 23 percent on a lot of basic goods,” said Ilias Lekkos, chief economist at Piraeus Bank SA in Athens. “We’re now slowly seeing this drip-feed into inflation.”

The return of inflation in Greece moves the country above the average for the euro area, where consumer prices rose an annual 0.2 percent in December.

It recalls the early years of the nation’s debt crisis, when sales-tax increases to bring down the country’s deficit drove inflation to as high as 5.7 percent in September 2010.

The biggest price increases in December were in food and non-alcoholic beverages, which rose 2.7 percent, and hotels, cafes and restaurants, up 2.5 percent. The main deflationary drag came from housing costs, including heating oil, which fell 3.8 percent.

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