Inflation, not Covid, is main worry for government

Prime Minister Kyriakos Mitsotakis and his closest aides are relieved that the new wave of the coronavirus pandemic, due to the Omicron variant, appears to be more manageable than initially feared.

At the same time, they are worried about inflation, driven by energy prices, and its impact on finances and the government’s popularity.

Last month, inflation was 5.1% on an annual basis, a level not seen since 1997 and only approached once, in 2010 (4.7%), the year the financial crisis began biting in earnest.

For government officials, the optimistic scenario is that energy prices will start stabilizing in the next three months and that, by June, the global supply chain issues will be straightened out. If this comes to pass, the center-right government will have weathered yet another of the successive crises it has faced since its four-year term began in July 2019.

If inflation persists, officials hope the political cost will be mitigated by the widespread awareness that these are global problems and that the government is trying hard to offset rising energy costs. Aides to the prime minister say subsidies to electricity bills will remain in place in February and March.

Mitsotakis has also announced a second modest rise in the minimum wage from May 1. But he has ruled out reducing value-added tax.

As for the pandemic, Mitsotakis and his aides believe the latest wave has peaked and cases will start dropping significantly in February.

Aides close to Mitsotakis say that, if there is no new coronavirus variant, and if there is a global inflation downturn, this year and the next will be very good. Projects funded through the EU’s recovery fund will provide another boost. These prospects confirm Mitsotakis’ belief that he should not call early elections.