Inflation in Cyprus dropped to 0.8% in 2025 — well below the ECB’s 2% target — yet high prices continue to squeeze households. This is the finding of a new study by three Central Bank of Cyprus experts published on the institution’s blog.
The core explanation is straightforward: inflation measures how fast prices rise, while the cost of living reflects how high prices have already climbed relative to incomes. Between 2021 and 2024, prices in Cyprus rose a cumulative 16.5%, driven mainly by the pandemic and the energy crisis. Even though the rate of increase has now nearly zeroed out, the new elevated price level remains.
Meanwhile, private-sector wages rose a cumulative 14.5% over the same period — less than prices. This means workers’ real purchasing power has declined, particularly for low-income households.
The study notes that the situation is aggravated by the fact that prices of essential goods — energy, food, services — have risen more than the general index. The overall consumer price index recorded a 17.1% increase compared with pre-pandemic 2019 levels.
The researchers conclude that targeted interventions are needed to boost incomes without undermining fiscal discipline, alongside investment in skills and innovation, and strengthening competition mechanisms and price transparency.
