Higher costs on goods are here to stay

Market analysts do not see an improvement in the cost of goods in the next period and until the first half of 2022. In fact, Cyprus is one of the countries most affected compared to other countries, due to its high dependence on imports of products and raw materials, 95% of which reach Cyprus by sea. Hence the increases in container freight rates were reflected early on in product prices, mainly in the construction sector.

This is an imported problem, the regulation of which does not depend on Cyprus, according to the director of economic development and economy Antonis Fragoudis who spoke to "K".  So, since this is an import problem, little can be done to limit the market impact. However, he points out, some reductions in VAT on products or perhaps some actions included in the Recovery and Durability Fund could be taken on a budget basis.

Cause and effects

So what caused the price increases? The source was the rising cost of energy and the chain effects on transport costs, which were already burdened by the balance of supply and demand during the pandemic. Added to all this is climate change with its effects on the production of raw materials. It is therefore a mixture of adverse developments which inevitably results in a crisis in the world market.

"The increases happened in the background of the pandemic," explains economist Andreas Hatzis. He estimates that the upward trend will continue for the next year and continue in early 2022.  And it will be a chain effect - inflationary trends in the market will negatively affect the purchasing power of consumers, with all what this entails in economic, social and labor terms. "If we consider that prices will increase by an average of 15-20%, it means that consumers either have to increase their income or they have to reduce their expenses by 15-20%. "This will inevitably have an impact on the market."

Container prices are four times higher

Undersecretary of Shipping Vassilis Dimitriadis spoke about the spike in container prices, explaining that the phenomenon was initially caused due to lockdowns, causing huge demand for products, and reducing supply of containers, which raised prices to new heights.
It is indicative that at the moment, the transport of a container costs about 15 thousand dollars, compared to about 2.5 thousand just a year ago. The phenomenon will normalize but it will take some time, he noted.

"We will enter a process of normalization of supply and demand but I would not say that it will be fixed overnight, it will take some time. "Market forces will gradually normalize as demand decreases and container supply increases." At the level of shipping, an effort is being made to reduce transportation costs. However, he says, even if there is a drop in container prices, they may not return to pre-Covid levels.