Cyprus local goods are the main cause of inflation

If you thought that inflation has been creeping up this year because of the high cost of petroleum then think again. Statistics on consumer price inflation by economic origin produced by the Statistical Service Cystat show that the main cause of higher inflation in the first eight months of this year has in fact been our own producers of locally produced goods.

Locally produced goods accounted for 1.35% of the 2.95% cumulative inflation rate in Jan-August, whereas petroleum products were responsible for only 0.85%.

Non-petroleum imports actually depressed inflation by 0.23% in the same period, while services accounted for 0.95% of the overall inflation rate.

It’s all in the weights

How can inflation be caused by locally produced goods when the actual January-August inflation rates show that petroleum prices rose by 13.9%, while locally produced goods rose by ‘only’ 4.9%?

The answer is in the weights, which are apportioned according to the relative size and importance of such goods in the market place.

Locally produced goods, being generally more numerous (think of all that bread and milk we consume) have a weight of about 29% in the index, while petroleum has only 6%.

Non-petroleum imported goods also have a strong weight of 25%. But the biggest weighting of all in our developed economy is the weighting of services, at around 40%.

Although local producers’ costs may also have been affected by the high cost of petroleum, it is still a cause for worry that local producers seem unable to compete with importers.

Fiona Mullen