The government will support low-income groups hit by the highest inflation rate for decades, said Finance Minister Constantinos Petrides.
Cyprus’ inflation in April spiked 8.6% in the Harmonized Consumer Price Index compared to the same in 2021, according to Eurostat’s preliminary data.
Petrides noted that “we are indeed living in an era of inflation, not only in Cyprus but in the entire European Union”.
The minister attributed the rise to the war in Ukraine.
“The war in Ukraine has pushed up oil and gas prices, while food prices increased because 30% of the world’s grain production is offline.
“It is not something that any country can deal with on its own,” argued Petrides.
He said the government would continue intervening to mitigate the consequences as much as possible, especially for the most vulnerable groups.
“There is no other country that reduced fuel tax horizontally, and for everyone, other countries chose to give some benefits only to the vulnerable, we reduced the VAT horizontally on electricity for several months, from 19% to 10%.
“We further targeted the vulnerable and reduced it from 19% to 5%.”
Petrides referred to the government’s ‘targeted actions’ such as a 50% increase for allowances in mountainous areas and the approval of an €8.5 mln budget to help the livestock sector to cope with increases in feed and grain prices, in addition to €16 mln already given.
“We have used a significant part of the reserves to support society during the pandemic. One of the reasons we see that consumption is quite high despite inflation is precisely because incomes were supported, of course at an incredible fiscal cost to the state.”
Petrides said that prosperity in Europe in recent years has been due to relatively low fuel prices, but this is now beginning to change.
He feared a repetition of the 1973 fuel prices “stagflation” crisis, which led to high inflation amid a recession in the economy.
“This will come at a cost… I hope inflationary trends will subside, but we must note that we still have the cheapest fuel prices in the EU at the moment.
“We will try to focus on protecting the vulnerable and from there, through growth and investments, try to raise incomes.
“Certainly, the next few years will be quite difficult for the Cypriot economy and especially for the European one.”
Price inflation has been on an upward trend in recent months.
In March, the Consumer Price Index increased by 1.94 units to reach 107.78 units compared to 105.84 units in February.
The annual increase in inflation in March was 7.1%.
For the quarter January-March, the Consumer Price Index increased by 6.4% compared to last year.