Macro roundup: Inflation rate plummets

Price growth measures give conflicting pictures for Greek services

A sharp drop in energy prices is rapidly bringing down Greece’s headline inflation rate, even though food price growth is still in double digits.

The inflation rate using the national consumer price index fell to 4.6 percent, down from 6.1 percent in February and a high of 12.1 percent in June 2022. Under the European Union-harmonised index of consumer prices, the headline inflation rate dropped to 5.4 percent from 6.5 percent in February.

On the EU-harmonised measure, Greek food prices grew 14 percent in March. A 14.7 percent drop in energy prices was far greater than for the euro area as a whole, where they dipped 0.9 percent.

This divergence helps explain why Greece’s inflation rate is falling faster than the euro-area average, though Greek core inflation rate — which strips out both food and energy — rose to 7 percent in March from 0.2 percent the month before. Core inflation for the euro area a whole is at 5.7 percent.

One interesting feature in the data is the divergence between the national and EU-harmonised measures in their readings for services inflation. In the EU-harmonised index, services grew 5.2 percent in March, slightly higher than the growth in the euro area as a whole. By contrast, under the national measures, the inflation rate in services has collapsed, with prices falling 0.5 percent.

During the current inflationary wave — which originated in shocks to supply chains and energy — services are being looked at as an indicator of the persistence of price increases. So the divergence in these readings seems important.

I’m not sure why it is that these measures of service inflation are so different.

However, one difference between the national and the harmonised measures is that the latter measure includes spending by non-residents in Greece, whereas the former doesn’t. So a likely explanation is that the EU-harmonised measure is driven up by higher prices faced by tourists, whereas the national measure more accurately reflects the price of services for people living in Greece (as it’s designed to).

This ties in with our look at the terms of trade a few weeks ago.

More on Greece's terms of trade improvement

In that post, we weren’t able to get into the impact of tourism on Greece’s surprising terms of trade improvement as we lack granular enough data. But we can say for sure that services played a big part. If tourist spending explains the divergence between the two inflation measures, that would fit with the general picture.

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Other data

• Industrial production grew 5.2 percent in February from a year earlier.

  • Manufacturing increased by 7.1 percent; mining and quarrying by 6.4 percent

  • Electricity supply fell by 1.3 percent

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Next week’s key releases

Tuesday, April 18:

• January-March central govt preliminary budget execution (Finance Ministry)

Thursday, April 20:

• February balance of payments (Bank of Greece)

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Elsewhere on the web

• National Bank of Greece’s economics research department has put out a special focus report on the country’s current account deficit.

• The government in the U.K. looks to Greece’s migration policies as an example. They should serve as a warning instead.

• If you like Grecology, you should also subscribe to the Sofokleous Street newsletter, which focuses more on Greek investing trends. There are fascinating nuggets in this look at OPAP and Greeks’ love of gambling:

  The Greek "Gambling Mentality"

• With the IMF and World Bank spring meetings happening this week, Matthew Klein reposted this piece from January on U.S. international economic statecraft. His focus is on the U.S., and he’s very diplomatic here when it comes to calling out other parts of the world. But the last section on losing money abroad as enlightened self interest sums up what should be EU policy too (but won’t be).

  Some Thoughts on U.S. International Economic Statecraft

• This was a really interesting piece from Dan Davies. A particularly intersting perspective was the idea of the growth of the modern state emanating out more risks being deemed “out of the ordinary” as the world got more complex.

  ordinary and otherwise

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