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Greece’s annual inflation rate accelerated to its highest level in nearly five years last month, as the economy made a stunning exit from three years of deflation and weak price growth (see chart above).
Harmonised consumer price growth hit 1.5 per cent in January compared to the same month in 2015, climbing from 0.3 per cent in the month prior.
Greece’s inflation performance is in line with the inflationary upsurge seen across the eurozone in the last few months, with average consumer prices at four year high in the bloc at 1.8 per cent in January.
Greek inflation was pushed up by the rising cost of housing, food and alcohol at the start of the year, according to a breakdown of the inflation basket from Elstat.
Higher inflation could prove problematic for the Greek economy however, after a surprise contraction in growth at the end of last year. Rising prices for staples such as food and drink threatens to crimp consumers in an economy where unemployment is at 23 per cent (see chart below).
Despite hopes from the country’s creditors that Greece is set for a growth bounceback in 2017, GDP contracted by 0.4 per cent in the final quarter of last year, reversing two previous quarters of expansion.
The figures come at a sensitive time for Greece’s economic future, as a fresh impasse between its creditors in the EU and the International Monetary Fund threatens to delay its next injection of rescue cash.
The country’s two-year bond has sold off sharply again today, sending yields up more than 30 basis points on the back of worries a meeting between bailout officials next week will not break a stalemate the reforms and budgetary targets baked into the country’s €86bn bailout.
Rating agency Fitch has warned Greece could be downgraded further into junk territory later this month without an agreement.
First chart via Bloomberg
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