CBC blog warns price pressures remain despite slowdown

The Central Bank of Cyprus (CBC) has announced the launch of the CBC Blog, a new digital platform aimed at strengthening public understanding of economic and central banking issues.

According to the CBC, the initiative forms part of a broader effort by the central bank to enhance public information and transparency around economic developments and the role of central banks more generally.

Through the new blog, the bank seeks to provide timely and accessible analysis on matters relating to the economy, financial stability, monetary policy and the wider field of central banking.

The blog will feature technical and signed articles authored by members of the bank’s staff, offering insight grounded in professional expertise and institutional experience.

The CBC added that the objective is to deliver credible, well-documented and comprehensible information to specialists, journalists and the wider public.

The first post published on the platform is was on inflation in Cyprus, including recent trends and dynamics, authored by Demetris Kapatais, Maria Mithillou and Maria Papageorgiou.

The authors warned that while inflation in Cyprus has fallen sharply, the problem of high prices continues to erode household purchasing power.

In their analysis, the three CBC officials examined developments between 2019 and 2025 and concluded that the cumulative rise in prices over recent years continues to weigh on consumers, particularly vulnerable households.

They point out that the rise in the cost of living has become one of the most pressing issues in Cyprus and across Europe, citing findings from the Eurobarometer survey published in February 2026.

According to the survey, 41 per cent of European citizens consider tackling inflation, high prices and the cost of living to be the main priority for the European Parliament, while the same issue was identified as significant by 34 per cent of Cypriot citizens.

The authors stressed that high prices, reflected primarily in increases in essential goods and services, are closely linked to inflation and directly affect the real purchasing power of households.

They underlined that the impact is particularly severe for lower-income and vulnerable households, which struggle more to cope with higher living costs.

The study focused on private sector wages, excluding public administration, education, health and the information and communication sector, as public sector pay is largely determined by institutional pay scales and the technology sector shows significant wage differentiation.

Explaining the distinction between inflation and high prices, the economists pointed out that inflation measures the rate at which prices increase in an economy, whereas high prices reflect the relationship between the overall price level, especially of essential goods such as food, energy and housing, and income levels.

“When inflation is high or a wave of price increases has preceded, high prices are strongly felt, even if later the rate of price increases slows,” the authors state.

They added that high prices may persist even during periods of low inflation if essential goods and services have already reached disproportionately high levels relative to incomes.

Between 2021 and 2024, they continued, inflation in Cyprus based on the Harmonised Index of Consumer Prices rose cumulatively by 16.5 per cent, while in the euro area it reached an even higher 18.8 per cent.

The authors attributed this development largely to strong inflationary pressures triggered by external shocks, including the impact of the Covid-19 pandemic and Russia’s invasion of Ukraine, compared with pre-pandemic levels.

Inflation in Cyprus then slowed significantly, reaching 0.8 per cent in 2025, well below the European Central Bank’s medium-term target of 2 per cent, while the corresponding rate in the euro area stood at 2.1 per cent.

However, they cautioned that the sharp slowdown in 2025 does not eliminate the issue of high prices because the overall price level remains elevated compared with 2019 due to cumulative increases in previous years.

Turning to wages, the authors found that long-term statistical analysis shows wage developments are linked to both inflation and productivity.

Between 1997 and 2010, wages increased in line with inflation and productivity growth, which historically averaged close to 1.5 per cent, while inflation remained above 2 per cent, largely due to VAT increases associated with European harmonisation.

During the economic crisis between 2012 and 2015, this relationship shifted, as wages were cut and no cost of living allowance was granted amid negative economic growth and negative inflation.

In contrast, between 2020 and 2024, wages rose by around 2.9 per cent annually or 14.5 per cent cumulatively, while inflation averaged 3.1 per cent or 15.4 per cent cumulatively over the same period.

The authors further explained that that price pressures have been more intense in categories with the greatest weight in household expenditure, particularly for vulnerable groups.

The overall Harmonised Index of Consumer Prices in 2025 was 17.1 per cent higher than in 2019.

Energy prices in 2025 were 26.1 per cent higher than in 2019, with electricity up 41.9 per cent, diesel up 18 per cent and petrol up 15.2 per cent.

Food prices rose by 19.2 per cent over the same period, including bread and cereals at 20.9 per cent, dairy products such as cheese at 17.9 per cent, mineral waters and soft drinks at 28.8 per cent, pork at 32.4 per cent, fruit at 41.2 per cent and vegetables at 15.9 per cent.

Services prices increased by 19.1 per cent compared with 2019, driven by tourism-related services such as hotels at 26.2 per cent, restaurants and cafes at 28.4 per cent and organised holiday packages at 45 per cent, as well as rents at 21.7 per cent and education fees at 11 per cent.

Industrial goods excluding energy rose by 6.5 per cent, including cars at 21.5 per cent, furniture and decorative items at 14.8 per cent, pharmaceuticals at 7.6 per cent and personal electrical appliances at 5.1 per cent, while clothing fell by 0.4 per cent and footwear by 6.7 per cent.

The authors highlighted that targeted state measures helped cushion the impact.

They stated that internal calculations showed that overall annual inflation was reduced by around 0.6 percentage points in 2022 and 0.4 percentage points in 2023 due to interventions on fuel and electricity, and by 0.3 percentage points in 2024 due to a zero VAT rate on specific food categories.

They added that businesses absorbed part of the higher costs by compressing profit margins, which averaged marginally negative levels close to minus 0.5 per cent between 2022 and 2024, contributing to price stabilisation.

“Addressing high prices requires a combination of targeted state and private sector interventions that strengthen disposable income of low-paid households without undermining competitiveness and fiscal discipline,” the authors conclude.