Cyprus inflation unaffected by oil prices

But may not last long

The Cyprus consumer price inflation in June appears to have been unaffected so far by rising world oil prices, as the rate dropped to 1.7% on June 2004, compared with a rate of 2.4% in May. On a month-on-month basis, prices declined again slightly, by 0.05%.

For the first six months of 2005, prices rose by 2.6% compared with the year-earlier period.

One of the main reasons for the fall in the rate of inflation was a 0.5% drop in the heavily weighted food, beverages and tobacco sector. Prices in this category fell not only compared with the previous month, which might be expected for seasonal reasons, they also fell compared with June 2004, by 0.8%.

However, signs that the honeymoon period may be over can be seen from prices of housing, water electricity and gas. This category rose by 5.0% year on year in June, the same as the average rate for the first six months of this year.

Because of Cyprus’ heavy dependence on imported oil, these are affected by high oil prices. The Electricity Authority of Cyprus has already hinted that prices per kilowatt hour may have to rise.

In addition, regulatory action means that the sharp drop in communications prices may also be coming to an end. After 20 months of either falling prices or negligible rise, communications prices suddenly jumped by 6.5% compared with the previous month in June. This rise is probably related to the Competition Commission’s demand that the dominant telecoms provider, the Cyprus Telecommunications Authority (CyTA), reverse cuts on international rates which it had imposed at the beginning of the year.

Fiona Mullen