A recent study by the Economics Research Centre (CypERC) at the University of Cyprus explores how fluctuations in international commodity prices—particularly oil and food—contribute to inflation within Cyprus.
The research, published in CypERC’s latest newsletter, emphasizes the impact of global geopolitical events—especially the war in Ukraine and broader regional instability—on the prices of critical raw materials. Since countries involved in these conflicts play a major role in global trade for oil and food, their disruption has caused notable price increases.
To understand how these external shocks influence domestic inflation, the Centre examined data spanning from January 2008 to December 2021. The focus was on Cyprus’s Harmonized Index of Consumer Prices (HICP) and its main subcomponents. The goal was to determine if inflation in Cyprus could be predicted based on oil and food price changes.
The findings confirm that international price shocks significantly affect most HICP subcategories. Specifically, a 1% rise in oil prices leads to a 3.5% increase in energy inflation. Similarly, a 1% rise in food prices mostly impacts unprocessed food categories, resulting in a 1% increase in related inflation.
CypERC also notes that when applying the model to actual conditions in early 2022, the projected inflation for energy closely aligned with real outcomes—largely due to Cyprus’s reliance on oil for energy production. This close dependency suggests that energy inflation in Cyprus may be more sensitive to oil price changes compared to other economies.
However, the Centre anticipates that this impact will reduce over time, as the country progresses toward cleaner and more sustainable energy alternatives.
Source: Stockwatch.com.cy
