Fact and distortion

Leo Brincat went on record that "the inflation rate in Malta is 60 per cent higher than the inflation rate in the European Union". Mr Brincat may want to clarify his numbers.

Perhaps his measurements of EU inflation come from a place other than Eurostat. In any case, the official numbers yield anything but Mr Brincat's conclusion. It is yet another example of how the Labour Party manages its presentation of the facts.

In July, Malta's year-on-year inflation rate was 1.8 per cent. In the Euro zone, July's year-on-year inflation rate was 1.9 per cent and in the EU-15 it was 1.8 per cent.

Just how does Mr Brincat get from almost identical inflation rates to his charge that one inflation rate is way in excess of the other? It just boggles the mind!

The period from summer of last year to January this year saw a mild acceleration in consumer prices that had to do mainly with weather conditions which drove up agro-food prices.

It had nothing to do with any government policy failure, regardless of how hard Labour tried to spin the news. In fact, the solution for this recurring problem is the trade liberalisation that Labour claims to be against.

Looking at the recent inflation deceleration (Chart 1), why would Leo Brincat blow up the situation into one where we are supposed to run an inflation rate that is 60 per cent faster than the EU's?

If he's using the 12-month moving average rate, there's no excuse either. He must have realised that this too has fallen in each of the last three months, as the monthly inflation tails off and as earlier food-related increases recede into a distant past.

When inflation slows down, the monthly rate delivers the news first, followed with a lag by the moving average rate.

Under the previous Labour administration, there were occasions where alarm over inflation was justified, especially when water and electricity tariffs were more than doubled.

Now that was government induced inflation when oil prices were less than half what they are today!

Then and now

Last week, the NSO published the ETC's employment statistics for April 2002, along with the unemployment numbers for July 2002. They contain indications that the negative effects of the international slowdown are tailing off.

Between April 2001 and April 2002, the combined number of employed and unemployed (the so-called labour supply) shrank by 488, to 144,866. This drop is explained partly by the recent retirement scheme implemented at the shipyards.

By late April, out of the 540 who accepted early retirement, a hundred had found new employment, while 133 started registering as unemployed. The rest, numbering 307, were not actively looking for work, explaining a significant part of the reduction of 488 in the labour force.

In the 12 months ending in April 2002, the total number employed across the economy decreased by 1,144 to 136,741. Political slogans aside, few would deny that the decrease is the result mainly of the downturn in foreign demand that our export manufacturers and tourist industry are inevitably exposed to.

The greater part of the employment reduction was outside the private sector. In fact, of the total reduction, there was a drop of 705 in public sector employment, and here too the yards' retirement scheme played an important part.

As I already mentioned, 540 signed up for the scheme, reducing public sector employment by the same number. Private sector employment was 376 fewer in April 2002 than a year earlier.

Unemployment figures are now available for July, and they show an increase of 336 from a year before. If we compare unemployment in each of the last several months to the corresponding number in the same month a year earlier, we reach a number of conclusions about the path followed by the data.

The change from a year earlier in registered unemployed switched from decrease to increase in October 2001, in the immediate aftermath of the tragic events in the US a year ago. The highest increment was reached in April 2002, which showed an unemployment rise of 656 from the previous April.

However, as shown in the chart below, the unemployment increase measured in this manner has been narrowing since and stood at 336 in July, the most recently available statistic.

Although later unemployment figures are not yet available, the recently-published trade figures are one indicator of an improved manufacturing export performance that stands to have a lagged positive effect.

An overall assessment of labour market conditions cannot ignore several far-reaching developments, both of local and foreign origin. First, the employment and unemployment numbers were influenced by the retirement scheme at the yards.

In addition, the domestically oriented manufacturing sector has already undergone a substantial degree of restructuring that will increase its competitiveness, although the employment results in those sectors undergoing restructuring are encouraging.

Furthermore, the manufacturing and tourism sectors were inevitably hit by the continuing weakness in international demand.

At every turn, the Labour Party has eagerly pounced on new statistical evidence as further signals of abject hopelessness. At the same time, their experts lack the objectivity that would compel them to at least acknowledge the relevance of the drop in world demand. If they were more objective, they would soften their outright rejection of current policies and present a credible set of alternative policies.

At its most devious, Labour's strategy is to abuse the results of the Labour Force Survey. It so happens that the Labour Force Survey is an exercise started during this administration in preparation for accession into the EU, and therefore Labour's record in office cannot be assessed with LFS numbers that can then be compared to this government's performance.

Yet that does not stop leading Labour spokesmen from comparing today's 'high' LFS findings with the 'low' ETC numbers from their days in office. They know it's a sham exercise, but they keep doing it.

You don't see them comparing the ETC's numbers from their two years in government to the ETC's numbers for this government's time in office.

Most countries have their ups and downs in the tempo of economic activity. Back during Dr Sant's ill-fated government, it was mostly a contraction that we experienced, and then it was almost entirely of his own making.

Unlike today, Labour's policies did not go about spurring sorely needed restructuring across industry, and the international economic scenario was much rosier than recently.

By September 1998, employment had declined by 2,365 from two years earlier, with job shrinkage of 874 in private direct production alone. Registered unemployment rose by 679.

The malaise back then was the maverick and hard-headed implementation of bad policies. If Dr Sant were to get his hands back on the levers of government, he and his colleagues would be carrying the policy luggage that slowed down the country and its economy for those long 22 months in 1996-98.

In a recent interview, Dr Sant promised to be softer around the edges, but that's all. There will be no overhaul of the policies that failed or of the management style that did so much damage.

In contrast, the current mild slowdown that the economy appears to be emerging from had its origins abroad, and that's precisely why it has been mostly contained in export manufacturing and tourism.

Although the economy has been through a rough patch, the steady pursuit of reasonable long-term policy goals ensures that our economy can take full advantage of renewed growth in foreign demand. It promises to bring out the best in restructured and revitalised manufacturers.

Furthermore, inflation should continue to slow down as the levy dismantling process is followed to its logical conclusion.