Cost of living measures must be aimed at vulnerable households, the Central Bank warned on Tuesday, warning that blanket support risks pushing prices higher by raising demand.
“If they are not targeted, we are channeling money to households that cause more inflationary pressures, due to increased consumption,” Central Bank spokeswoman Maria Papageorgiou told the House commerce committee.
She cited a European study which found that 31 per cent of Cypriot households were unaffected by price pressures.
She said the European Central Bank is raising interest rates to contain demand-driven inflation, but that rate rises do little against energy-driven price increases.
Finance Minister Makis Keravnos did not attend, which committee chairman and Disy MP Nikos Georgiou said made discussing the issue “extremely difficult” without the government being politically represented.
The ministry’s permanent secretary, Andreas Zachariades, attended briefly but left before the session ended.
Inflation caused by external factors
Zachariades said inflation was stemming primarily from external factors, chiefly fuel and energy.
He listed three types of response: immediate relief, reforms that raise income and measures to cut energy use.
Previously announced government relief measures include lower VAT on electricity, fuel and heating taxes cut to the EU minimum and zero VAT on essential goods.
Asked whether these savings reach shoppers, he conceded that “it is not easy to confirm that they are reaching consumers”.
Cyprus’ annual inflation stood at 5.2 per cent last month according to EU records, among the highest in the EU and well above the 3.8 per cent euro area average.
Cyprus’ own consumer price index showed 3.7 per cent, with petroleum products up 25.8 per cent and electricity and water up 11.2 per cent.
Georgiou said the middle class is shrinking while low earners run out of money before the month ends.
Public in a state of ‘economic suffocation’
He said high prices were keeping the public in a state of “economic suffocation” and accused the government of following events retroactively instead of pre-emptively planning ahead.
He called for targeted help for large and three-child families, students and low-income pensioners.
Akel MP Constantinos Constantinou called the existing measures “insufficient and without any substantial impact”.
He renewed Akel’s proposals, including an end to double taxation on fuel, a 50 per cent cut in vehicle registration fees for lower-income groups as well as a permanent 5 per cent VAT rate on electricity.
Akel’s Yiannakis Gavriel asked whether Cyprus would copy Malta by subsidising fuel through a state distributor.
Alma’s Irene Charalambides said prices began rising well before the wars in Iran and Ukraine and blamed poor energy planning and golden passports.
Direct Democracy’s Yiannis Laouris said his party has submitted five energy bills, including liberalising electricity production and storage.
Elam’s Evgenios Chamboulas called the 19 per cent VAT on property “unbearable and criminal”.
The competition commission said high or uniform prices are not illegal in themselves, adding “we do not set prices, nor do we control profit margins”.