How are key economists and financial analysts interpreting the recent statistics on inflation as revealed by the NSO? CHARLOT ZAHRA got their reactions as the annual rate of inflation stood at -0.5 per cent, a reduction of -1.3 per cent. Is it deflation, and if so what does it mean?
John Cassar White: “As long as our inflation remains significantly higher than that of the euro zone area we risk losing out in foreign direct investment”
In October, inflation stood at 2.7 per cent, a reduction of 0.5 per cent from the October inflation rate, whereas the annual rate of inflation stood at -0.5 per cent, a reduction of -1.3 per cent. As an economist, what is your reaction to these latest figures?
As long as our inflation remains significantly higher than that of the euro zone area we risk losing out in foreign direct investment. This factor is affecting our competitiveness and we need to address it immediately.
Which are those areas in which the cost of living, according to the NSO, has gone down significantly in October? Why?
The main fall was in the communications index because of lower prices for mobile phone services. The Hotels and Restaurants Index went down significantly because of seasonal adjustments after the peak period for tourism.
Which are those areas in which the cost of living, according to the NSO, has gone significantly up in October? Why?
Clothing and Footwear went up by 10.3% on account of season increasess in the prices of clothing goods. The education index also went up significantly because of higher tuition fees.
How does Malta’s inflation rate fare with the rest of the EU and the eurozone?
Our inflatiion rate is consistently higher than that in the eurozone. Even for next year the Minister of Finance is projecting inflation at 2% which is double that forecast for the eurozone area.
Which are those categories where Malta’s inflation is higher than the rest of the eurozone? Why?
The most worrying elements are the food index, especially unprocessed food, and the energy index. The energy index is being affected by the elimination of subsidies in this sector in the last year or so. The food index is being affected by the inefficiencies in the delivery chain of local products from the farmers to the consumers and possibly the dominant position of certain food importers who can dictate prices.
What effective measures should the Government take in order to curb inflation in those areas that are above average when compared to the EU/Eurozone?
The setting up of a consumer agency is a step in the right direction. One hopes that this agency will be made effective and given rights to sanction abusers.
The delivery chain of localy produced products also needs to be addressed and the pitkalija system reformed to ensure that prices do not double of treble by the time they reach the consumers.
With regards to energy prices, while we have to accept the fact that we have to pay market prices for the energy products we consume, more can be done to introduce some stability in prices over a given period of time. The can be achieved through the establishment of a fuel prices stabilisation fund that smooths peaks and troughs in energy prices.
Karm Farrugia: “The social partners should, in my opinion, press the government to launch an intensive detailed study on price increases during 2008”
As an economist I was annoyed to read The Times’ correspondent from Brussels almost greeting the latest NSO figures as being the onset of deflation simply because in just one single month the HICP rate of inflation was negative as compared to its preceding month.
Deflation is a series of successive negative inflation rates that span over a stretch of about six months, and are indicative that sellers are desperately reducing their prices, possibly below cost, in the face of a persistently falling demand from buyers holding out in anticipation of even further price reductions.
The digits do not really reflect the cost of living as we know it in Malta - they refer to the Harmonised Index of Consumer Prices which chiefly enables us to make comparisons with the rest of the EU members and is diluted with non-private households and with annual changing weightings.
Had they referred to the Retail Price Index I would have been happier noticing a stabilisation of the real cost of living and hopefully slowly returning to that prevailing two years ago after we had ‘artificially’ kept it down in anticipation of seeking admittance to the Euro area.
As we all know there was later the expected price explosion from early last year which, sadly, continued since then, exacerbated by the tariff increases. It appears that the reduction in prices this time was due mainly to mobile phone charges and seasonal hotel accommodation rates - which probably would not have had much of an impact on the RPI anyway.
Furthermore, clothing prices (seasonal) pushed up the rate considerably, as well as educational tuition fees. These are items that feature relatively weighty in the RPI.
The social partners in MCESD should, in my opinion, press the government to launch an intensive detailed study to establish whether price increases during 2008 and the first 10 months of this year were ‘ justified ‘ in a free competitive economy. If there are ‘ gremlins ‘ operating in our economy, we had better locate them and deal with them without any delay!
John A Consiglio: “There is no doubt that in the pockets of many middle and low working class and pensioners’ pockets spending power seems to be more restrained”
On a practical nose-to-the-ground basis it is obvious that the business sectors of our economy (especially those whose customers are restrictedly in the local domestic market) have, over the past year, moved into some seriously conflicting stances. We have certain sectors, like, for example, the property sector, and some retailing sectors, (but then not certain professional services or transport units), who have realised that the market cannot continue to be expected to pay what - at ever increasing rates during 2007 and 2008 - they were pricing their products/services at.
There is no doubt that in the pockets of many middle and low working class and pensioners’ pockets spending power seems to be more restrained, and no doubt the high, and now again expected to be higher, water and electricity bills, have had their impact on this feeling. This being the buying public’s overall climate there would then of course be serious competitive reaction from retailers and importers in trying to source for sale products
that are cheaper. In some areas, like for exanmple, clothing, printing,
stationery, books, and lower priced giftware, a fair amount of ordering does occur ahead of the winter months, and this probably reflects itself in October figures.
But even after taking all of this into account Malta’s inflationary tendency remains higher than that of (generally) the EU. Membership of the eurozone has, speaking generally, not lived up to the much touted, and perhaps too generally made promises, that prices in Malta would fall right across the board. Indeed, some sectors have found new strength or solace or powers or grist for their wheels, and indulged in holding-the-citizen-to-ransom policies, with of course the main culprit being the medicines-importing community. Factually it is now both government, and the citizenry, which are at their mercy, and God help us if no form of pricing discipline is inmfused in this, and possibly other sectors, is quickly introduced.
Medicines, books, CDs, cars, unbranded clothing items, computers, and a wide range of other goods, can often be found at prices which are factually cheaper in several EU centres than they are (for the same goods) in Malta. One appreciates that import and handling costs have, again, not gone down (there are, as said above, several services operators who are really making big profits), and yes, too, a quantum of profit percentage must always be conceded. But the real nub remains precisely in the rates of these allowed mark-ups. To blindly accept all the blah-blah that we hear and read about so-called “free market competition” to act in favour of the general citizenry, in a small market where critical mass simply does not exist and function as in other larger countries, is to renounce to a properly functioning sense of social justice.
Edward Scicluna: “Most prices are falling and so one should focus on which ones are not, rather than the other way round”
In October, inflation stood at 2.7 per cent, a reduction of 0.5 per cent from the October inflation rate, whereas the annual rate of inflation stood at -0.5 per cent, a reduction of -1.3 per cent. As an economist, what is your reaction to these latest figures?
First of all I would like to state that it is really surreal and significant that we are discussing inflation at a time when the whole world, and not just the EU, is going through a period of relative deflation.
Secondly, it is confusing that we continue publishing two statistics for the same phenomenon. As it is, though, I can report that both are generally reflecting a common trend though the figures do not match.
Thirdly, since the month-on-month prices changes are not seasonally adjusted I think we should not give too much importance to their behaviour.
In general the trend is telling us that inflation is falling having reached a high during the first two quarters of this year. Although more prices are falling than rising the past positive price changes are still hurting and are expected to leave scars both socially and economically.
Which are those areas in which the cost of living, according to the NSO, has gone down significantly in October? Why? 3. Which are those areas in which the cost of living, according to the NSO, has gone significantly up in October?
Most prices are falling and so one should focuson which ones are not, rather than the other way round. The prices which are increasing are in the services sectors especially education and health. These are the second round response of the professionals and people in the industry who want to compensate themselves for being hit with cost rises during the first round. Food and beverages are following suit too. All these goods and services are non-traded goods (not for export) and therefore have little competition from imports.
How does Malta’s inflation rate fare with the rest of the EU and the eurozone? 5. Which are those categories where Malta’s inflation is higher than the rest of the eurozone? Why? 6. Which are those categories where Malta’s inflation is lower than the rest of the eurozone?
Inflation is a persistent rise in the price level. It does not matter which items rise and others fall, the damage is the same. As expected the initial price rise could come from a particular source such as world food or energy prices. In our case the government acceded to Enemalta riding piggy back on these shocks and exacerbated the increase. The secondary effects are inthose sectors which lack competition and are able to pass on this shock onwards into further price changes.
What effective measures should the Government take in order to curb inflation in those areas that are above average when compared to the EU/Eurozone?
Inflation is driven also by price expectations. Any talk by the government, and the Prime Minister in particular, of impending significant price changes adds to the inflationary spiral. The damage of imminent and so far unknown tariff changes have done irreparable damage in this respect. Everyone thought that the government would have learnt the lesson from last year’s saga. Apparently not. This is surreal indeed.
