Greek inflation evaporates, slump hits property prices

ATHENS Fri Feb 15, 2013 8:37am EST

A woman pulls a shopping cart inside a shop where all products are sold at the price of one euro in Athens December 8, 2011. REUTERS/Yiorgos Karahalis

A woman pulls a shopping cart inside a shop where all products are sold at the price of one euro in Athens December 8, 2011.

Credit: Reuters/Yiorgos Karahalis

ATHENS (Reuters) - Greek inflation evaporated in January to hit its lowest level since data began in 1996, the national statistics service (ELSTAT) said on Friday after five years of austerity-fuelled recession sapped consumer price pressures and pulled down property values.

The EU-harmonized consumer inflation rate (HCPI) was 0.0 percent year-on-year in January, ELSTAT said, below a 0.2 percent forecast in a Reuters poll of economists.

"The disinflation process continues as the pass-through from wage adjustments is strengthening and domestic demand remains under pressure," said Eurobank economist Platon Monokroussos.

"I would not exclude negative CPI inflation readings in the following months, although recent electricity price increases may temporarily constrain the adjustment in consumer prices," he said.

Greek price rises have come to a halt, after the country's adoption of the euro in 2001 led to a debt-fuelled boom and to inflation running almost twice as fast as in the euro area. Greek HCPI rose by an accumulated 46 percent in 2001-2011 compared with 29 percent in the euro area.

Cuts in public sector pay and pensions have contributed to an internal devaluation process aimed at making the 195 billion euro economy more competitive.

Signs that downward price pressures are growing were also reflected in central bank data released on Friday, showing that property prices dropped by 11.7 percent last year from a 5.5 percent fall in 2011.

Property, mainly residential apartments, accounts for about 80 percent of household wealth in Greece, which has one of the highest home ownership rates in western Europe - 80 percent versus 70 percent in the European Union - according to European Mortgage Federation data.

Higher property taxes to help plug budget deficits, coupled with tight credit from capital-strapped banks and record-high unemployment have pressured the real estate market as Athens struggles to emerge from a severe debt crisis.

Based on the central bank's data, apartment prices tumbled by 28 percent since their peak in 2008, when the country's recession began.


In 2012, Greece's HCPI rate dropped below the euro zone average for the first time since Athens joined the euro. The government and the EU expect Greece to be in deflation territory this year with the HCPI rate dropping to -0.8 percent.

Greece's economy is expected to shrink again this year, by 4.5 percent, bringing total GDP contraction since the recession began to almost a quarter. Households' real disposable income over the past three years has shrunk by almost a third.

Unemployment has climbed to an all-time record of 27 percent, the highest in the 17-nation euro zone, also dampening price pressures.

(Additional reporting by Harry Papachristou; Editing by Hugh Lawson)

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Comments (1)
dareconomics wrote:
Greece is the cradle of Western civilization and bad economic news. Inflation no longer exists in Greece as it moves into a deflationary spiral.

This article discusses how wage adjustments are bringing down inflation, but that is really not the case. Wage and pension cuts are a relatively small percentage of the sapped purchasing power of the Greek consumer. What is really driving deflationary “wage adjustments” is the fact that at least 27% of the country is earning no wages at all, because they do not have jobs.

According to economists, Greek GDP will only shrink by 4.5% this year. Unfortunately, I think this figure is too optimistic. PMI numbers are still in line with last year’s 6.5% drop. By the way, if the Greek economy shrinks this much, the resulting tax revenue shortfall ensures that Greece will require more bailout money in the summer right before German elections.

Full post with chart here:

Feb 15, 2013 12:30pm EST  --  Report as abuse
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