Cyprus inflation stabilises in February

Inflation stabilised in February, with both the consumer price index (CPI) and EU-harmonised consumer price index (HICP) recording and increase of 3.1% over the year earlier—the same rate they both recorded in January.
Inflation peaked in December with the HICP reaching 4.0% and the CPI hitting 3.8%.
A slower pace of increase in food and non-alcoholic beverages was one reason, as the imposition of the lower VAT rate of 5% on food and medicines in January 2011 fell out of the index.
The CPI for food and non-alcoholic beverages thus rose by 3.5% over the year earlier in February, compared with 9.5% in December.
Prices of clothing and footwear fell by 1.8% compared with February 2011–their fourth monthly drop in a row—no doubt hit by weak demand.
On the other hand, prices of electricity, water and gas rose by a punishing 13.3% over the year earlier, owing to the multiple increases in electricity costs, caused by charges to rebuild the destroyed Vassiliko power station, tariffs to rebalance the cost between households and industry, and EU fines for busting CO2 emissions targets.
The moderation in overall inflation is unlikely, given that VAT rose by 2 percentage points to 17% on March 1st.
Fiona Mullen
www.sapientaeconomics.com