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20 July, 2024
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Targeted fuel and heating reductions in government's considerations

Implications for inflation and possible relief measures

Maria Eracleous

Maria Eracleous

The Cyprus Electricity Authority has announced a 3% increase in electricity prices for upcoming bills. This comes amid rising fuel prices and recent data from the Consumer Price Index indicating that inflation continues its course of normalcy. In September, inflation stood at 4%, with the highest increases recorded in the food category.

To break it down further, the cost of agricultural products increased by 15.2% compared to the previous year, while food and non-alcoholic beverages saw a 9.13% increase.

Services and products in the "Housing, Water, Electricity, and Gas" category also experienced a 5.8% rise. Among the notable price fluctuations were household furniture and cleaning products, which saw a 5.49% increase.

Significantly, petroleum product prices also exhibited a noteworthy change, increasing by 5.13% in just one month. This category of goods holds a substantial impact on household expenses, accounting for approximately 6% of annual spending.

Heating and electricity costs represent 5.27% of total annual household expenditures, while food products constitute 17% of the overall household budget.

It's worth mentioning that since May, Cyprus has implemented a zero VAT rate on seven essential product categories, including bread, milk, eggs, baby diapers, women's hygiene products, and adult diapers. Furthermore, from November 1st, this measure will extend to sugar and coffee.

For retirees and residents in mountainous areas, the government is considering targeted relief measures to address the cost of living. These measures are expected to be revealed at the end of October and may include reductions in fuel prices, whether for transportation or heating. However, these reductions are likely to be income-dependent, with low-income retirees potentially being among the beneficiaries.

Additionally, it is anticipated that the new package of measures will also include some relief in heating fuel costs, especially for residents in mountainous and semi-mountainous regions. As previously announced, starting in 2024, Cyprus will implement a green tax on fuels, translating to new taxes on fuel prices, although offsetting measures for households are under consideration.

The European Commission also supports targeted measures over broad ones and suggested that if price increases resurface, they should be directed toward those in need. The general escape clause of the Stability and Growth Pact is expected to be deactivated at the end of 2023.

This development marks a significant shift for Cyprus, as it is no longer classified by the European Commission as having "excessive imbalances."

[This article was translated from its Greek original]

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