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Greece registers first annual price decline since 1968

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(Globalpost/GlobalPost)

Greek consumer prices fell in March for the first time since 1968, declining by 0.2 percent on an annualised basis owing in large part to lower costs for telecommunications, according to official data released on Tuesday.

"It is the first time since May 1968 that the consumer price index is negative," Michail Glenis, head of the inflation department of the state statistics service, told AFP.

Forty-five years ago, when Greece was in the second year of a military dictatorship, the consumer price index marked a 0.3 percent drop before rising again that June by 0.5 percent on a 12-month comparison, he added.

The drop in consumer prices in Greece over recent months is largely the result of austerity and six years of continuous recession.

Deflation "is one of the most negative consequences of a violent and continuous policy of austerity, which lowers demand and proves that the economy is in deep recession," Kostas Melas, professor of economics at Athens's Panteion University, told AFP.

Greek GDP has fallen by more than 22 percent overall since 2008 as austerity measures have eroded domestic demand as salaries and pensions have been cut.

Unemployment has jumped to 27 percent.

"The drop in prices will continue as long as the programme of fiscal adjustment continues and no measures are taken to encourage growth and investments," added Melas.

Professor of economics at the University of Athens Panagiotis Petrakis pointed out on a positive note that "this can be considered the first sign that the imposed policy of rebalancing and internal devaluation finally bears fruit."

As Greece is in the eurozone it cannot devalue its currency to boost competitiveness, with wages needing to come down in what is called an internal devaluation. A drop in consumer prices signals wages have come down sufficiently for Greek industry to regain market share.

"The devaluation will favour the (small, slowly expanding) export-oriented sectors and will somewhat restore the competitiveness of the Greek economy as a whole," he said, adding though that this comes at a huge cost to other sectors.

In February 2013, prices had increased by 0.1 percent compared with the same month a year earlier.

On a monthly comparison, prices rose by 2.5 percent in March, picking up from an increase of 1.5 percent in February.

The most striking annualised falls in March were recorded in the communications sector, where prices fell on average by 5.1 percent, and in the health sector, where they were down by 4.6 percent.

The heavily-indebted eurozone country currently depends on international rescue loans to avoid bankruptcy.

The government's latest budget forecasts that the economy will contract again by 4.5 percent this year, while inflation is expected to average 0.8 percent.

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http://www.globalpost.com/dispatch/news/afp/130409/greece-registers-first-annual-price-decline-1968-0