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25 July, 2024
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How the consumer pocket faces a perfect economic storm

European economy on edge amid Suez, wars, and pandemic

Maria Eracleous

Maria Eracleous

The uncertainty and the intense upheavals in the global supply chain continue. The attacks of the Houthis on commercial ships in the Red Sea area and the escalation of the conflicts with the involvement of the USA and Britain, have an inevitable impact on the maritime transport of goods. Already, giant companies in the retail sector announce that there will be delays in the delivery of cargo and goods.

At the level of prices, the impact of the developments has not been clarified yet and is not expected at least for the time being. At the Eurogroup on Monday, the European Commissioner for Economy Paolo Gentiloni was clear about how this new crisis will affect the European economy, stating that in case of continuation of the situation, the consequences on energy security and supply chains will lead to inflationary pressures. The magnitude of the upcoming, as everything shows, increases has not been clarified at present.

What is clear, is that any consequences of the new crisis will also affect Cyprus, something inevitable from the moment that 90-95% of imports in the country arrive by sea. As protagonists of the retail trade told "K", within the next 1-2 weeks the level of price increases in affected products will be clarified. In the first stage, the estimates speak of 7-20% depending on the product.

These are products such as clothing and footwear, electrical and electronic appliances, cars, tools and furniture. The first price increases will start around the end of January. Already, as the Secretary General of the Pancyprian Association of Retail Trade Marios Antoniou describes, the first loads have arrived and the first deliveries have been opened with the new costs. The course of prices will depend on the duration of the crisis in Suez.

The scenarios
There is an optimistic scenario according to which the crisis in maritime transport will be defused soon, without causing serious damage to trade and the prices of products. In this scenario, as described by Mr. Antonis Fragoudis, director of the department of economics and administration of OEB, there will be some delays of 2-3 weeks, and then normality will return.

In the pessimistic scenario, the attacks of the Houthis continue while they are intensified with the involvement of more countries with the consequence of increasing the freight rates (they have already reached the limits of tripling within a month), pressures on the price of oil internationally, delays in the arrivals of goods, and consequent price increases with whatever this entails for the market, the businesses and of course the consumers who will be the final recipients of the crisis.

This is another crisis that threatens consumption and comes to be added to a burdened chain of events that hit the pockets and the quality of life of the citizens in the last three years with wars and pandemic.

There is an increase of 10.6% in the current price of gasoline, 17.5% in diesel and 33.7% in heating oil compared to the pre-coronavirus levels.

From 2021
The scenario in this case is different from what the pandemic brought to the level of economy and trade, but the consequences are familiar and remind of the data of 2021. A year earlier, in the midst of the first months of the spread of the pandemic, inflation recorded a downward trend, as a result of the reduction of consumption.

However, later, demand began to recover. The same did not happen with the supply, due to the underfunctioning of production units and the reduced supply of containers that led to the skyrocketing of their prices. From the summer of 2021, the first estimates began to be formulated by factors of the retail trade for inflationary trends and increases in the prices of goods that would affect the supply chain and the economy, which moreover existed as a result of the two years of the pandemic.

Until the end of the year we were talking about a price explosion, mainly in gasoline, oil, and at the level of food, in fruits, vegetables and cooking oils, but also in clothing and footwear.

The blow of the war
In 2022, the increases on the shelves of the supermarkets and the cost of energy continue their upward trend. A course inevitable, and reinforced from February 2022 with the economic consequences of the war in Ukraine. By the end of the year, the cost of electricity increased by 36.2% and by 30% the liquid fuels (data from the Statistical Service). During the same period, the issue of adequacy in cereals arises, due to the ban on exports from the Ukrainian ports, thus excluding one of the main players in the global production of cereals. Three months after the Russian invasion, a mixture of uncertainty and transport costs, raised the price of bread in Cyprus by 6%, 14% higher was the price of flour and 12% of pasta. The inflationary pressures continued to weigh on the consumer power and the following months. In October 2023, the war in Israel began. A war that may not have disrupted the trade balances, and did not bring increases in the prices of products, however it has affected the prices of petroleum products because Israel is one of the countries from which Cyprus imports refined products. The obstacles to the smooth movement of petroleum products led to increases in the prices of fuels in the Cypriot market, as stated by Marios Drousiotis, president of the Cyprus Consumers Association.

The inflationary pressures
Indicative are the fluctuations in the retail prices of fuels. Specifically, on March 10, 2020, the average retail price before the coronavirus was the following:

Gasoline 95 octane 1.208 cents/liter

Diesel 1.233 cents/liter

Heating oil 0.786 cents/liter

On March 7, 2022 (one month after the start of the war in Ukraine), the price of unleaded 95 octane was at 1.443 euros/liter, 1.501 diesel and 1.026 heating oil, while in July of the same year the prices rose even more with diesel flirting with two euros per liter (specifically a price of 1.989 euros/liter was recorded).

Of course, the prices were reduced later, and due to the imposition of a zero rate of consumption tax on fuels. However, at this moment, the retail sales prices of fuels are noticeably reduced compared to 2022, but nevertheless compared to the levels of March 2020 there is an increase of 10.6% in gasoline, 17.5% in diesel and 33.7% in heating oil. We also referred to the statistical data for the Consumer Price Index for the periods under reference. Specifically, for the period January-December 2021, it recorded an increase of 2.5%, with December of the year recording an increase of 4.8% compared to December 2020.

In 2022, and specifically in December 2022, inflation increased at a rate of 7.9%, while for the period January-December 2022, the Consumer Price Index recorded an increase of 8.4% compared to the corresponding period of the previous year. The data for 2023 had not been published at the time the report was written, however we referred to the immediately previous data of January-November, a period during which the Consumer Price Index recorded an increase of 3.7% compared to 2022, while inflation increased at a rate of 1.7%. The data of inflation and the Consumer Price Index show that consumption is in a permanent increase of prices, while the messages that arrive, are not encouraging.

[This article was translated from its Greek original]

Cyprus  |  economy  |  energy  |  Ukraine  |  RedSea  |  shipping  |  gasoline  |  diesel

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