Inflation, Economic Policy, and the Drachma

Abstract

Greek inflation is something of a mystery. The bane, as well as the prime concern, of all governments since 1973, it has fluctuated between 31 and 8 per cent, or around a 1973–95 average of 17.5 per cent, with a standard deviation of 5.8 per cent. The mystery, or perhaps miracle, is that during that period it has not become galloping inflation, but then it has also resisted dropping to one-digit levels. Only recently has the Greek inflation rate actually fallen below 10 per cent (8.1 in December 1995 and 7.5 per cent in December 1996, with a rebound to 9.2 per cent in April 1996); whether the rate will continue moving downwards remains to be seen, but it will be far from easy. Within the extreme values of the 1973–95 period, Greek inflation has shown sharp fluctuations: easy to shoot up, easy to come down.

‘ … the core of inflation was influenced only very slowly by the current contractionary monetary and fiscal policy.’

Bank of Greece Annual Report for 1995, p. 24