Cyprus’ Maastricht inflation rate creeps up in June

The key inflation rate that will be used to judge whether Cyprus has met the euro Maastricht inflation target crept up in June, as the average harmonised inflation rate (HICP) rose to 2.1% for the 12-month period July 2005 to June 2006, compared with 2.0% in the period June 2005 to May 2006.

However, this rate is still comfortably below the current Maastricht target of 2.6%.

In order to meet the Maastricht inflation target next year, average 12-month HICP in Cyprus must be no more than 1.5% above the average 12-month HICP in the three EU countries with the lowest inflation rates.

In May–the last month for which data are available–Eurostat reported that the lowest three were Finland at 1.1%, Sweden at 1.2% and Poland at 1.3%, or an average of 1.2%.

That means that if Cyprus’ assessment had been made in June 2006, then its target would have been 1.2% + 1.5% = 2.6%. With a 12-month average of 2.1%, Cyprus would have met this criterion.

No room for complacency

However, indivdual HICP rates each month are creeping up. Compared with the same month of 2005, the HICP rate in June recorded 2.6%, compared with 2.5% in May.

Inflation in Cyprus is not helped by the fact that wages are adjusted upwards twice a year through wage-indexation.

Prices of housing, water, electricity and gas shot up by 10.8% compared with the same month of 2005 in June, while the price of transport (influenced by petrol pump prices) was 7.3% higher.

In fact, inflation is only really being kept down by cheap clothes imports and a continuing fall in communications prices.

Fiona Mullen