NEWS | Wednesday, 03 September 2008

Unions, employers preoccupied with inflation spike

Charlot Zahra

The social partners interviewed by Business Today this week all expressed their preoccupation at the recent inflation figures for July 2008, which reached a staggering 5.6 per cent as calculated by the Harmonised Index of Consumer Prices calculated by Eurostat.
The Unions are foreseeing that the rise in the cost of living would erase the purchasing power of workers, and called on the Government to take effective action to curb the cost of living.
Kevin J. Borg, Chamber of the Malta Chamber of Commerce and Enterprise (COC) Director-General said that the Maltese economy was amongst the smallest, most open and on the geographical periphery of its major trading partner – the EU. “Malta is extremely dependent on a resilient European economy for its tourism and exports of goods and services,” he told Business Today, adding that what was of most concern for the Chamber was that “the effect of the recent increase in the energy surcharge on local businesses could be further exacerbated by undue pressures for wage compensation which are not commensurate to productivity gains.
“This could further erode the country’s competitiveness position besides potentially leading to further inflation,” he insisted.
While inflation was definitely of prime concern, the COC said it was “confident in the authorities’ ability to maintain a long-term stable inflationary environment.
“The authorities and the private sector must pool ideas and resources to ensure that any decline in incomes of our European customers does not affect demand for Maltese goods and services.
“Again, the Maltese business community has proved time and again that it is more than capable of turning challenges into opportunities,” he said.
Asked on whether the Consumer and Competition Division should be strengthened in order to curb inflation Borg said: “The Chamber, whilst being ready to discuss ways in which this could be strengthened, reiterates that the best way to safeguard the interests of consumers is to let free market conditions prevail with competition taking its course.
“Moreover, the Chamber insists that the long-term solution lies in the common target of the country continuously improving its competitiveness, primarily through its human resources – our people – being more knowledgeable and flexible.
“Ultimately the country relies on us to rapidly act, react and adjust effectively to an ever-increasingly challenging circumstances.”
On his part, Malta Federation of Industry (FOI) Director-General Ray Muscat said that there were a numerous issues to consider with regards to the causes and implications of the rise in price inflation.
“Inflation is rapidly becoming a global problem, fuelled by the prices of energy and food products,” he said. “In a small, open and peripheral economy as ours, international price shocks of this type could have even stronger effects, as we are completely dependent on imports for energy and food.”
For example, Malta didn’t have the territory to be self-sufficient in food production, and local food production often had to source raw materials from abroad.
“In the case of energy, part of the increase in costs could however have been caused by an insufficient diversification of energy sources, even though admittedly, it is only very recently that alternative energy production is becoming more financially attractive,” Muscat told Business Today.
Another important consideration was that in Malta, “we typically suffer higher transport costs and cannot benefit from price discounts out of bulk purchases.
“Market monitoring is often called for, but this could, in itself, increase costs to business and eventually the consumer,” he warned.
The FOI Director-General said that in such a situation, “the main priority for Government and the social partners is to avoid one-off price increases transforming into a price-wage inflationary spiral, as this would lead to successive and prolonged price increases which would ultimately dent the country’s competitiveness and jobs.
“We are therefore to resist the temptation of resorting to short-term oriented solutions such as giving extraordinary cost-of-living adjustment increases, as this would only constitute a temporary palliative to the symptoms of the disease, making the disease even worse in the medium term,” Muscat insisted.
He said the effective response to the situation was to adjust consumption patterns so as to avoid, as much as possible, the effects of price inflation, and increase the country’s income and productivity so that earnings would grow in a manner which matches and outstrips the growth in prices.
“But this would have to come out of genuine productivity, not out of transfer payments.”
Moreover, Muscat insisted that “a suitable balance in market monitoring would have to be obtained which ensures and engenders effective competition, and enhances consumer confidence in market competition, without imposing undue and inflationary costs upon business.”
“It is also true that in this situation, a category of households would be in a greater risk of poverty. It would therefore be appropriate to adequately identify this group and redirect social expenditure to assist it in a targeted manner.
“This however would have to be done without any increase in the overall expenditure of a social nature that would potentially preclude government from attaining its medium term deficit targets or which would impose additional tax burdens on the productive sectors of the economy,” the FOI Director-General told Business Today.
General Workers’ Union (GWU) Secretary-General Tony Zarb said that the Union has been insisting for a long period of time that the inflation rate is constantly rising and that action should be immediately be taken about the matter.
Asked for the Union’s reaction to the rise in the inflation rate, Zarb said: “What the GWU has been saying about the cost of living has now been confirmed by facts.
“Inflation is a big concern for the GWU since the cost of living has eaten away considerably from workers’ and pensioners’ purchasing power. This will continue to be eroded unless concrete measures are taken to make good for the price increases.”
While calling for effective action, Zarb did not exclude convening an extraordinary meeting of the MCESD in view of the latest developments regarding inflation.
“It would be good if the Government convenes an MCESD meeting, however now the time for action has arrived, not for further discussions. The problems, especially those about the cost of living, will not be solved with a lot of talk where no action is taken,” Zarb warned.
“During various MCESD meetings, the GWU spoke directly and persistently about the rise in the cost of living and about the important need for the inflation problem to be addressed concretely and without any further delays.” the GWU chief insisted.
“It also seems like the Government is relying too much on free market because it believes, or wants to give the perception that it believes that the free market and competition will curb the cost of living.
“The statistical figures however belie this principle because despite of the free market, inflation continued sky-rocketing,” he explained.
“People cannot leave it in the hands of the forces of the free market to defend it against unjustified price hikes, and therefore it should be the Government itself that should ensure that there are no abuses from prices.” Asked what concrete measures the government should take to tackle the rising inflation figures, Zarb told Business Today: “The GWU still insists on the need for the Government not to increase its costs for businessmen so that prices do not rise.”
“Furthermore, the GWU thinks that the Government should take other measures such as tax reduction so that while spurring the economy, it assists all those whose standard of living is being made worse by the rise in the cost of living,” he insisted.
Asked to elaborate on the factors leading to the rise in inflation, and whether these factors were locally-induced or the result of external factors which are beyond our control, Zarb explained:
“Undoubtedly, the surcharge on electricity and water bills has accelerated the inflation rate, because besides the burden that it put on families, it also led to an increase of the prices of various services, including those in the transport sector.
“As has been confirmed by statistics, food prices have also led to the rise in the inflation rate,” he added.
“With regards to the surcharge, one can argue that the country did not have control over the prices of oil because it is imported. However, the same cannot be said about the price of food items, especially the prices of vegetables and fruits, since we do not import them from abroad.”
Zarb also stressed on the importance of mechanisms needed to combat inflation, calling for the Competition and Consumer Protection Division to be “strengthened and made more effective in its operations.”
The GWU has been long insisting on a change in the manner with which cost of living is calculated, petitioning for a more realistic reflection of actual prices.
“It looks like on the Government’s side there is little will to combat inflation,” he added. “One should remember that the Committee for the Adoption of the Euro should have been transformed into an authority or an agency for the protection of consumers. It seems like the Government has changed its mind on this because nothing has been implemented in this respect.”
Likewise, Malta Union of Teachers (MUT) President John Bencini said that the MUT was “extremely worried about the latest rise in Malta’s inflation statistics which has reached the highest rate in the past ten years.
“Inflation is the world’s number one problem. After all, what it all means is that our money won’t buy as much today as it did before. It means a decline in the purchasing power of money. The grocery bills find their way up while the value of one’s hard-earned money plummets,” Bencini complained.
“If it gets worse, money is not safe in fixed deposits and there is also a danger that more inflation could end up with one’s money locked. This is why the MUT is worried,” he warned.
“The Government should also discuss this serious problem with other entities and I believe there should also be a special sitting in Parliament, where all our elected members, Government and Opposition, should put their heads together to stop this rise in inflation,” Bencini insisted.
Resounding Zarb’s statement, Bencini said: “Government does not seem to have the will to tackle inflation.” He explained that the Government kept saying that inflation was a global phenomenon as the continuous rise in food and energy prices.
“Inflation can be tamed with proper planning and policies and it is here where Government is to blame. The introduction of the Euro last January started working out smoothly and it did continue as such for the first three or four months where Government was monitoring prices.
“Now things have gone out of hand and monitoring does not seem to be on the Government’s agenda. Consumers are witnessing daily price increases especially on food and clothing,” Bencini insisted.
He said the Government was not doing enough to bring down energy consumption and Malta was still far away when it comes to alternative ways of energy. “The private sector should be encouraged to use more renewable source like solar, wind etc to generate energy.”
“Government must create conditions where farmers are able to sell their produce directly to consumers so that both can benefit,” Bencini added.
“In the United Kingdom, Prime Minister Gordon Brown wants to assemble experts to debate solutions. It’s about time the Maltese Government does the same,” the MUT President insisted.

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