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‘Perfect storm’ for increased prices

Growing demand as the world economy recovers after the pandemic, combined with pressure on energy resources ahead of a heavy winter after a very hot summer, are creating a ‘perfect storm’ for prices, particularly energy, an EU official said on Tuesday.

Myrto Zambarta, who heads the European Commission’s representation in Cyprus was speaking during a House commerce committee meeting focused on rising prices and the impact of inflation.

MPs participating called on the government to take action to contain spiraling costs for energy, raw materials and basic goods which they said posed a threat to households, businesses and specific sectors of the economy such as construction.

Proposals from different political parties included fairer pricing for energy, a reduction on VAT on electricity, support for vulnerable groups, measures to contain rising costs in construction and price ceilings on basic goods such as milk, water and bread.

Zambarta said a convergence of factors was leading to a rise in price generally, and energy more particularly.

Demand has shot up as the world economy picks up after the pandemic slowdown. At the same time, a heavy winter in north Europe and a particularly hot summer have created huge energy needs for heating and air conditioning, she said.

Three factors are in play, she added. Energy prices are always cyclical, and this is an international phenomenon; the price of renewable energy sources have remained steady or are dropping and thirdly Europe is import dependent for its energy – 90 per cent of its natural gas and 97 per cent of its oil – which makes it vulnerable to price fluctuations.

“These three facts show us that the transition to green energy is necessary not only for the planet but for our economy,” she noted.

The Commission’s priority is to help vulnerable businesses and families, and to this end it has announced a toolbox of actions member states can take without the prior approval of the Commission. Short term measures include a tax rebate given that taxes on energy in the EU account for up to 40 pe cent of household electricity prices and 30-34 per cent for businesses. Medium term measures include carbon emission trading, a single natural gas market and storage in third countries and increased investment in renewables.

Cyprus Shipping Chamber director general Thomas Kazakos attributed the increase in freight prices to more stringent environmental rules which had led to hundreds of ships being decommissioned – the number of ships handling world trade has fallen from 60,000 to 40,000 to 45,000 he said.

With the improvement in the Covid situation, production has resumed in countries such as China and India after a slowdown over several months, with demand surging as production shifts gear to catch up.

“The shipping sector of Cyprus fully understands that the increased costs are transferred to other productive sectors of the economy and of course at the end of the day to the consumer. This is clearly a case of demand and supply, especially for consumer products which are transported in their majority by sea, in containers,” he said.

The federation of contractors and building developers said the price of raw materials for the construction sector has risen by 15 per cent from September 2020 to September 2021 and is not expected to fall before mid-2022. The cost of a building is up 20 per cent, while some projects face cash flow problems raising difficulties in completing new projects.

A spokesman from Peo trade union federation said high costs were not transient and called for measures to be taken urgently. Options include reducing VAT on electricity, higher subsidies for vulnerable groups and the introduction of price ceilings to protect consumers. Sek trade union urged an anti-inflationary policy focusing on tax rebates and the full restoration of the cost-of-living allowance.

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