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Wednesday, October 3, 2012

Greece's high consumer prices

This article from the Ekathimerini very well summarizes the impression I have as a frequent visitor to Greece: consumer prices are not at all where one would expect them after several years of economic crisis, namely low. Instead, consumer prices are quite high relative to other Eurozone countries. I can compare them to Munich (where I lived until 2010) and to Austria (where I live now when I don't live in Greece).

First of all a disclaimer: when we shop at laikís, I wish there would be laikís with the same products and prices in Austria. A laikí is certainly a good place to shop but one cannot live on laikís alone.

Other than laikís, I form my opinion the following way: accompanying my wife to supermarkets (her favorite place is the Gran Masoutis); looking through shop windows in downtown Thessaloniki; frequenting tavernas, cafés and other places for food & drinks; visiting the Cosmos Mediterranean Mall, IKEA, Praktiker etc. from time to time; etc.

For the life of me, I do not understand why McDonald's should be more expensive in Greece than in Austria. My understanding is that McDonald's sources all of its products locally, i. e. everything they sell in Austria comes from Austria and the same for Greece. Given the recession in Greece, I have to assume that McDonald's cost structure in Greece is quite a bit lower than in Austria. If their prices are higher and the sales volume keeps up, they are making out quite well. Normally, their sales volume should go down because of the declining purchasing power of consumers and that should prompt them to lower prices. Well, it's obviously not working that way.

The Gran Masoutis is an excellent supermarket (there isn't anything like it near my home town in Austria) but the prices there are at least as high, if not higher, than in Austria. And here is the point: the number of shoppers (and cars in the parking lot) is not noticeably smaller than 3 years ago. It would be interesting to see their sales numbers.

Lidl strikes me a bit less expensive than the Gran Masoutis but just by walking through a Lidl store, one sees half the problem of the Greek economy: it seems that at least half the products are imported from Germany and those are products which could just as well be produced in Greece (and the jobs/income taxes are always where the production is).

As an Austrian, I have a bit of a "sweet tooth". From that standpoint, Greece is a dangerous place for me because there are so many great sweet stuffs on the market. But whether it is the ice cream shop or the regular pastry shop (not to even mention the fantastic Blé in downtown Thessaloniki!) - the prices are incredibly high!

Just like I use the McDonald's index for cross-border comparisons, I use the price of a glass of Ouzo for domestic comparisons. Luckily, there is a little taverna nearby where they charge 2,50 Euros for a glass of Ouzo but if I go to any of the places along the waterfront of Thessaloniki/Kalamaria/Nea Krini, I can pay up to 10 Euros for the very same glass. And those places are full of young people!

What would I expect to happen instead? Well, with the kind of economic depression which Greece finds itself in at present, I would expect to see consequences everywhere and not just selectively. In the places where we spend our time & money, I have to look carefully to see such consequences. Yes, there is quite a large number of closed shops and there are a lot of "for-rent and for-sale" signs on buildings but life around those is still quite bustling. Cafés are crowded all day long, shoppers are all over the place and traffic in Thessaloniki is as bad as ever before (despite much higher gas prices).

Still, it is a fact that disposable incomes have come down significantly and that would simply have to be reflected in purchasing power and demand. When a retail business sees demand going down, the first reaction should be to lower prices in order to keep market share. That may indeed happen selectively but it does not happen across the board.

In summary, the Ekathimerini article confirms what I have felt intuitively all the time. And it was just announced that, per August of this year, the annualized increase in consumer prices was 6,8%! This is a road to disaster, not only for Greece as a country but, particularly, for those Greeks whose disposable incomes have not increased by 6,8% in the last year. When in actual fact most Greeks have seen declines in their disposable income, it becomes even more mysterious how consumer prices can stay so high (and increase even further!).

7 comments:

  1. That fact that shoppers are all around does not mean there is no crisis: Actually I would expect to see way more people running around - if you have money you just drive to the supermarket and buy what you need. If you are short on cash you have to visit more places to get the best deals, and maybe do this before/after work to save the car trip.
    And lots of people in a tavern - how much are they consuming ? a beer ? or odering magnum champagne a gogo ?
    Even in the poorest part of India is the bustling evident but they are even poorer. One thing I notices is how the poor always seems busy, washing working running around - but they never become richer. The wealthy ones - sitting on the beach all day..

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    1. I hope I didn't imply anywhere that there is no crisis. As I said in the post, Greece is obviously in a recession/depression.

      My point is that it is extremely difficult (for me impossible) to understand why Greek consumer prices have not come down. There can be no question about the fact that, in sum, disposible income has declined very significantly. When disposible income (purchasing power) declines, one would normally expect that less goods/services are bought and, in consequence, prices come down.

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    2. Greek prices haven't come down because there is a cartel in place of greek companies that are keeping them up quite cold bloodedly, ie taking advantage. For some reason the general public hasn't caught on to this, though everyone sees the consequences. For example, in 2009 greek lentils sold for 2€ a kilo, now it's 4€/kilo - our staple poverty food! White product spaghetti sold in 2009 for 35 cents, now its 48 cents, etc.

      The poor are busy all day because - for example - they can't afford convenience foods, though the margin between making bread and buying it is very small. Being too poor to afford electricity - yes this happens regularly - also involves extra effort, like hand washing laundry. Having land to grow things is the key to survival now; I see city-dwellers harvesting olives and nerantzia off the trees in the parks & streets in central Athens; and relatives in the country are now the main source of oil, fruits, vegetables, cheese - check the bus stations, it looks like the 50s again.

      Even the laikis are over-priced, and no bargain!

      Thessaloniki sounds better off than Athens, could this be true?
      I live in central Athens on a extremely popular platiea situated in the 300m between the Hilton and Caravel hotels. 5 years ago you had to wait to get a table, now most of the tables are empty - and most of the customers come from the hotels. My neighbours and I very rarely use these cafes, despite the owners also being neighbours and friends - and the cafe-owners understand this.

      Instead we meet in each other's homes to socialise, or maybe once or twice a month go out to souvladzitika with friends, where one gyros pita and a shared 1/2 kilo of wine costs 3.40€ each. We don't order salad because we can make salad at home. Unimagineable 5 years ago, when only teenage boys & workers were the main customers.


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  2. Excellent article. Great to read about the theoretical insights here, but I find the practical implications on the simplest level (à la "Freakonomics") highly interesting as well.

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  3. Good morning, Klaus

    one possible reason for some of the disparity is that Greece levies 23% VAT* on food. Austria levvies 10% and the Netherlands 6% - Britain charges either 0% for basic food and 21% for what are considered luxuries.

    My other thought whilst making my morning pot of tea is that it could be transport costs in Greece. I'm speaking of the warehouses, and organization of the transport companies. My guess is that moving a lorry 500km in Greece costs a lot more than the same in Germany, simply because it is not as well planned.

    Whilst completely notional, it would go along with Greece's lack of efficiency and dynamism in its economy. Cheap borrowing allowed companies to avoid having to become lean in the way German and Dutch operations have had to.

    *(MwSt for you Germans and Austrians - sales tax)

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  4. Klaus, you are missing an important fact: Since the memorandum and troikas and all these and with the drastic wage lowerings, the prices of goods PRODUCED in GREECE have gone UP. And you know what: The troika and followers tune is that this is because .... wages have not gone down far enough! Reminds me of blind communists or neo-liberals that the reason we do not have paradise is that previous applications of communism or neo-liberalism were not 'pure' enough! You just cannot argue with these people.

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  5. Gemma,
    what is understood as 'lean' in Greece is much the same thing that happened to the US, i.e. Management cuts wages and fires people and at the same time gives themselves astronomic bonuses. These, in a nutshell are the 'structural reforms'
    being pushed through. And, when the law does not allow this, the government steps in to change the law. Not doing what other big companies are doing(that's what lean is about, e.g. trying to find a more cost-effective solution for anything that affects the operation, or making better products, which should be what competition is all about, is not even in their vocabulary)

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