A new study has identified the main factors driving Greece’s inflation, pointing to weak production capacity, rising costs of imported materials, and corporate pricing decisions as the biggest drivers of higher prices.
The study, led by Dimitris Paitaridis of the Political Economy department at the Hellenic Army Academy in Greece, was published in the journal Structural Change and Economic Dynamics.
The study looked at price trends across 48 sectors of the Greek economy between 1995 and 2023. Researchers wanted to understand why prices rose so sharply after 2021, when energy costs spiked following Russia’s invasion of Ukraine.
Greece’s inflation rate hit 9.3 percent in 2022, slightly higher than the eurozone average. While energy prices have since come down, food and core inflation remain among the highest in the European Union.
Main factors behind Greece’s inflation trace to import costs
The biggest reason behind rising prices is the cost of intermediate inputs, meaning the raw materials and components businesses buy to make their products.
Researchers found that businesses pass these costs directly onto consumers. This effect grew much stronger after 2009, following years of austerity measures and changes to labor laws introduced during Greece’s debt crisis.
The study suggests that years of budget cuts and labor market reforms weakened the country’s production base. As a result, businesses became more dependent on imported materials, leaving prices more exposed to global cost swings.
Researchers also examined how company profit margins affect pricing. Businesses do not simply set a fixed profit margin, the study found.
Instead, they adjust prices based on their investment plans, borrowing costs, and tax burdens. When interest rates rise or governments increase taxes, companies often raise prices to protect their profits, according to the analysis.
The findings indicated that this pricing pattern weakens when companies attempt to pay down debt rather than borrow more. During such periods, businesses become less likely to adjust prices based on investment needs, the researchers said.
Industry and services show different pricing patterns
The study also found that splitting the economy into two broad categories, industry and services, made the pricing model more accurate. This suggests that inflation behaves differently depending on the structure of each sector, rather than following a single uniform pattern across the economy.
The European Commission’s earlier policy response to Greece’s competitiveness problems focused mainly on wage costs, the study noted. However, the new research suggests that wages tell only part of the story. Material costs, interest rates, and tax policy also play a significant role in shaping consumer prices.
The researchers concluded that any future efforts to control inflation in Greece should account for the country’s weakened production structure, not just labor costs.
