A Central Bank of Cyprus study has found that high prices remain entrenched across the economy despite a sharp fall in inflation, with household purchasing power — particularly among vulnerable groups — continuing to erode.
Published on the Central Bank blog and authored by Dimitris Kapataes, Maria Mithelou and Maria Papageorgiou, the study finds that Cyprus’s inflation rate fell to 0.8% in 2025, well below the European Central Bank’s medium-term target of 2% and the eurozone average of 2.1%. But slowing inflation has not solved the cost-of-living problem. Price levels are already so much higher than they were before the pandemic that households continue to feel the squeeze, the authors say. Recent fuel price increases, which feed through to the cost of many other goods and services, risk making the situation worse.
The authors attribute the persistent pressure to cumulative price increases driven largely by external shocks, including the pandemic and geopolitical tensions. Between 2021 and 2024, Cyprus recorded cumulative inflation of 16.5% under the Harmonised Index of Consumer Prices. By 2025, the overall HICP index stood 17.1% higher than its 2019 level, with double-digit increases recorded across almost all major categories. Energy, food and services, which carry the greatest weight in the average consumer’s basket, saw some of the sharpest rises.
The problem is compounded, the authors note, by the fact that prices in categories weighing most heavily on household spending have risen faster than the general consumer price index, hitting vulnerable households hardest. Wage increases and government compensatory measures have only partially offset the cumulative impact, the study states.
Wages and purchasing power
Between 2020 and 2024, wages grew at around 2.9% a year, or 14.5% cumulatively, while inflation over the same period averaged 3.1% annually, reaching 15.4% cumulatively. The gap between the two means wage growth has not fully kept pace with rising prices, the study finds.
Historical analysis shows that wage dynamics in Cyprus have typically tracked inflation and productivity growth, a pattern visible in data from 1997 to 2010, when wages rose broadly in line with both. Productivity growth has historically averaged around 1.5%.
That relationship broke down during the economic crisis of 2012 to 2015, when wages were not only frozen but cut. Cost-of-living allowance payments were also suspended, due to negative economic growth between 2012 and 2014 and negative inflation between 2014 and 2015.
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