Stagflation: why it is happening

That there is inflation and that it has sky-rocketed is not in doubt.

We have the eyes and the ears to look at and to listen to the stark realities that have pushed inflation way up.

But editorials are not supposed to be note pads, they are there to serve as useful eye-openers.

Why is stagflation taking place?

First of all it is important to understand what inflation is. The technical definition would be the process by which the price level rises and money loses its value.

Inflation, economists will tell us, is a monetary phenomenon, it is when the price level and the value of money changes but not the price of a commodity.

Inflation happens because of a number of factors, which we would do well to note:

• Decline in money supply

• Decrease in government purchases

• Decrease in price level or real GDP in the rest of the world

• An increase in money wage rates

• And an increase in the price of raw materials

Looking at these criteria could help us understand why inflation is indeed on the up.

New financial procedures and proper banking facilities, reduced economic activity and confidence contributes to the decline in money supply.

An attempt to reduce public expenditure and contain the public sector is the contributing factor for a decrease in government purchases.

The drop in GDP in Europe and the world is an indicator that reflects directly on our economic performance.

The last two considerations mentioned above deal with the rise in salaries, the direct result of unending union intervention and the price tag of raw materials.

To address these issues, we need to break through some nettle-infested ground.

Today’s government believes that one solution is getting into Europe at all costs. They argue – quite rightly – that in Europe we will have new opportunities.

The Opposition react to this by stating that perhaps one needs to inculcate a relaxed mentality in the psyche of the Maltese.

For the last five years they have had to endure constant screaming about a deficit and an ailing economy.

Business is about chemistry, if the conditions are not right nothing is catalysed.

We need to stop talking about taxation, about deficit and debt and get on with life.

We need to have faith in ourselves and start to believe that the next hurdle - Europe - will bring improved changes to our lives.

Unfortunately on this point Maltese society needs more reassurance for its future. Then and only then will we enjoy the sweeter taste of economic growth on our shores.

Privatisation on the move

The privatisation at Malta International Airport comes at an opportune moment. The global economy is suffering from serious setbacks and Malta is no exception to this trend.

The privatisation at MIA will not only allow for a limited amount of immediate revenue but it will also provide for some value-added in this dynamic industry.

Regardless of who the prize would go to at the end of the day, the vying Malta Mediterranean Link or Alterra, the deal must go through without delay in order to capitalise on the timing of the deal.

The mechanics of the deal are now being clarified to the public to assure all concerned that there is no hidden agenda in the government’s privatisation drive.

The future processes governing privatisation are not expected to be very different from the one we have just witnessed!

Saviour Balzan