Cyprus HICP inflation within Maastricht target in January

At 1.4% year on year

 

The harmonised consumer price inflation rate (HICP) fell by 1.7% month on month in January largely thanks to the January sales which saw a drop of 19.4% in the prices of clothing and footwear.

Compared with January 2006, the rate was 1.4%.

The Statistical Service did not report the 12-month HICP rate (Feb 06 to Jan 07 for January, but according to our calculations it was 2.2%: the same as in December.

The 12-month HICP rate is the one that will be used in a few months’ time to assess whether Cyprus has met the Maastricht inflation criterion to adopt the euro in January 2008.

This rate must be no more than 1.5% above the three EU countries with the lowest inflation rates. In December these three were Poland, Finland and Sweden, with an average inflation rate of 1.4%.

Cyprus’ implicit target was therefore 1.4% + 1.5% = 2.9%.

We can assume from the initial Eurostat estimates for January that the implicit target was the same in January.

With a 12-month HICP rate of only 2.2%, therefore, Cyprus is still within the Maastricht target, with 0.7 percentage points to play with.

Fiona Mullen