Cyprus Fiscal Council advises against broad tax cuts amid rising inflation

The Cyprus Fiscal Council (CFC) has cautioned against using across-the-board tax interventions to combat inflation, instead recommending that fiscal policy focus on temporary, targeted support for vulnerable groups. This recommendation follows a sharp reversal in the country's economic standing, as Cyprus shifted from having the lowest inflation rate in the European Union in 2025 at 0.8% to the third-highest rate by August 2026, reaching 5.2%.

According to the CFC, this rapid increase is driven primarily by an external energy shock, compounded by disruptions near the Strait of Hormuz that began impacting prices in March 2026. While fuel prices saw an immediate impact, electricity costs followed with an approximate two-month lag. Inflationary pressures have also broadened to include services and food sectors.

Preliminary Eurostat data indicates that inflation remained at 5.2% in September 2026. The council highlights that the rapid shift demonstrates the island's high sensitivity to energy market volatility, prompting calls for fiscal prudence rather than permanent price containment measures.