Cyprus ‘Maastricht’ harmonised inflation rises

The key inflation rate that will be used to judge whether Cyprus has met the euro Maastricht inflation target rose again in August, as the average harmonised inflation rate (HICP) rose to 2.3% for the 12-month period September 2005 to August 2006, compared with 2.2% in the period August 2005 to July 2006.

This is still within the target for adopting the euro, but the wiggle room is getting smaller.

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 July–the last month for which data are available–Eurostat reported that the lowest three were Finland at 1.2%, Poland at 1.3% and Sweden at 1.4%, or an average of 1.3%.

That means that if Cyprus’ assessment had been made in July 2006, then its target would have been 1.3% + 1.5% = 2.8%. However, early estimates suggest that this rate is likely to have fallen to 2.7% in August.

With Cyprus’ 12-month inflation at 2.2%, that means it only has 0.5% to play with, even less than the 0.6% it had in July.

Meanwhile, inflation during August along actually decreased slightly, from 2.8% in July to 2.7% in August.

Slight month-on-month falls in the prices of clothing and footwear and food and beverages were behind the decrease. F.M.