LETTER | Wednesday, 06 February 2008

Are you using your deflators right?

From Prof. Joseph Falzon
Department of Banking
& Finance
University of Malta
Msida

I refer to the comments made by a “senior economist” regarding “technical misconceptions” in my report for GRTU because the appropriate deflator for consumption expenditure should take into account issues such as expenditure by Maltese people abroad.
I used the Retail Price Index (RPI) in my report, because the RPI is the official index measuring inflation in Malta. The consumption deflator in the GDP is showing falling prices of minus 1.86 percent for third quarter 2007, while the RPI is showing rising prices of 1.28 percent.
Even the inflation as measured by the other index, the HICP (Harmonised Index of Consumer Prices) is showing rising prices of 0.42 percent for the same third quarter 2007.
The public deserve an explanation from the NSO of whether prices in third quarter 2007 are rising or falling. This explanation was not given in the NSO reply on 31 January 2008 to the GRTU press conference.
The NSO reply also did not explain what percentage does expenditure by Maltese people abroad account in total domestic consumption. The NSO reply did not list the deflators for any of the components of the GDP.
It would be interesting to see what would the deflator for expenditure by Maltese people abroad show, and how this deflator is calculated by NSO.
How does NSO collect prices of expenditure of Maltese in Rome, Paris or London? It would be useful if the NSO explains to the public how this is done.
Nevertheless, the Household Budgetary Survey does take into account expenditure by Maltese households on foreign travel, such as air tickets, and therefore this element is already being reflected in both the RPI and HICP.
Regarding the other statement by this senior economist that “the fact that a member of the MSA made such a press conference shows either a blatant lack of professional ethics or a breakdown of communication within the MSA”, I would like to categorically deny that I broke any professional ethics in writing this report.
The press conference was called by the GRTU. I participated in the press conference to explain to the journalists the methodology used and results found in the paper.
I did not attack the NSO. In fact, I praised the NSO three times during the press conference. This was reported in the press on Thursday 24 January 2008.