All goods and services that are bought by consumers have a price, which may vary over time. Our economic and social life revolves around variations in the prices that consumers pay for goods and services, since these changes often bring about inflation. Inflation affects several of our sources of income including wages, salaries, the rents we pay and receive, allowances, benefits, pensions and savings.
The official inflation rate in Malta is established through the Retail Price Index (RPI), which can be explained in terms of a basket of goods and services consumed by the typical household. The RPI measures price movements in this ‘fixed’ basket. In Malta, the RPI is the sole yardstick used for the Cost of Living Adjustment (COLA). This index is monitored on a monthly basis by the Retail Price Index Advisory Committee.
Generally, households spend more on certain items than on others. This fact is reflected in the RPI through the weighting scheme, which indicates the relative importance of each individual item covered in the ‘fixed’ basket of goods and services.
The exigency to update the weighting scheme is paramount in an increasingly globalised and dynamic market. To this end, a Household Budgetary Survey (HBS) was conducted between March 2008 and February 2009. The HBS, which still remains the primary source in the construction of a new weighting scheme, is crucial in the identification of those products most purchased by households, and how these change over time.
The table and the chart above compare the weighting schemes at group level established in 2003 and 2010. The main differences between the two weighting schemes can be summarised as follows:
1. The expenditure on Water, Electricity, Gas and Fuels rose substantially over the past decade mainly due to an increase in oil prices.
2. An increase was registered in the expenditure on Personal Care and Health. The main causes were higher prices of medicines, and a prevailing tendency for people being more health and image conscious. Increasingly, more households are covered by a health insurance.
3. Linked to point 2 is the larger weight for the ‘Other Goods and Services’ category, mainly brought about by a rise in expenditure on insurances.
4. On the other hand, the relative importance of the group ‘Household Equipment and House Maintenance Cost’ diminished. This may be the result of more competition in the furniture industry, and the fact that dwellings, on average, are becoming smaller.
5. Although the weight on transport and communications remains relatively unchanged, an interesting shift occurred at a detailed level. Expenditure on communication services advanced since 2003, but this was offset by the drop registered in transport, caused primarily by the more competitive air transport market.
6. Over the past four decades the weight of food has decreased, indicating that, while spending on food remains substantial, the standard of living is improving.
Mr Keith Borg is manager of the Price Statistics Unit at the National Statistics Office.
