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Greek Inflation Drops Sharply

James Boston
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Greek Inflation Drops Sharply

An update to Greece’s reported inflation rate has taken markets by surprise this morning as hopes for a moderate pick up were met with a significant unanticipated drop. The October Consumer Price Index (CPI) has been announced as a deflationary -1.7% year on year, this follows a figure of -0.8% reported in September and it was expected that the trend back towards positive territory would continue this month, market analysts had predicted a reading of around -0.5% today. The Harmonized Index of Consumer Prices (HICP) did not fare any better, the latest reading here is for a -1.8% year on year fall in prices compared to a -1.1% reading last month, market analysts had anticipated a reading of around -1.0% this morning.

There is no hiding the market’s disappointment with this morning’s figures, it is not the fact
that the Greek economy remains deflationary, it has been posting negative price growth data for 20 months now, it is more the sharp coming to an end of the upward trend that looked set to return inflation to the Greek economy perhaps before the end of this year.

It is clear that the recent optimism around the Greek recovery is proving to be short lived. The failed attempt by Prime Minister, Antonis Samaras, to take the country out of it’s bail out program last month has done nothing to instil confidence in economy or the government. Samaras’ gamble was to have Greek standing on it’s own two feet ahead of elections which could take place early next year. The market however had no belief that the Greek economy was ready for this move on drove bond yields up to over 9%. This move by the market however may not have been a reflection on the current Samaras administration but rather an expression of concern that the hard left may take the reins of power should a premature vote be triggered.

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