Indigestible inflation
One of the most urgent problems the new government is likely to have to tackle is food inflation. Food prices have already been going up in Malta, as reflected in the relevant sub-index of the Retail Price Index (RPI). But there could be a lot more in...
One of the most urgent problems the new government is likely to have to tackle is food inflation. Food prices have already been going up in Malta, as reflected in the relevant sub-index of the Retail Price Index (RPI). But there could be a lot more in the pipeline. It is not only the world media that is concentrating on the rising cost of food, focusing upon and analysing the hard forecast that there will be more increases as the year progresses. Governments the world over are worried. From Morocco to Russia to China the authorities are introducing price controls and export taxes.
Where a country is a food importer, the government considers intervention to subsidise or control prices. Where it is a net exporter the government introduces export taxes to inhibit suppliers from sending their produce abroad. A few days ago because one main exporter of wheat clamped down on sales abroad, the international price soared by over 20 per cent within minutes of the announcement. In Egypt, reckoned to be the largest importer of wheat, price increases are being - for the moment - absorbed by the state.
The ongoing discussion on the cause of the inflation is triggered by recognition that the global economy is at the beginning of a period in which the consumer will face higher food prices. Reasons put forward range from climatic conditions (ostensibly due to climate change, like drought), to the knock-on effect of the escalating crude oil price on biofuels and the resulting decline in the cultivation of cereals. Countervailing measures seem to be having little effect. In the northern hemisphere much more wheat was planted over the winter, which should normally signal improved supplies (weather factors remaining equal). That notwithstanding, it is expected that there too prices will step up.
Input costs of various edible and non-edible products, such as vegetable oil, are also rising, pushing up the production cost of the final product.
Whatever the causal factors, the trend is pointing sharply upwards. Experts say the world is seeing price increases on a scale never seen before. Economists say that government intervention, whether through price controls, subsidies, or measures to deter exports, are making things worse because they distort the market. Nevertheless few governments seem to be paying attention to economic purists, where the authorities have some leeway for policy decisions.
The situation is worse for poorer countries and also for the lower-income groups in the richer countries. In rich countries food represents only a small part of total consumption. As such, an increase in food prices does not have a large impact on the cost of living of those earning good incomes. But whole countries are being hit, also from a nutritional standpoint.
Commentators observe that record grain prices are placing a heavy burden on developing countries. The forced result is a small decline in food consumption. The situation is also affecting the United Nations' World Food Programme. Crisis talks are being held to decide what aid to cut if new and compensating donations do not arrive.
No country is immune to the growing phenomenon of food price inflation, let alone Malta, which is such a heavy importer of all types of food. The government already subsidises grain imports. The subsidy was increased last year to try to cushion the impact on bread and related products. The further increase in international prices will soon exert fresh pressure. It may be the case that consumption of bread has decreased over the years. But the Maltese loaf is still part of the staple diet for thousands of families.
It is not only bread and other cereal-related products which are affected. The price of meat has also been going up, hitting the cost of living and restaurant prices. To an extent, there has been some mitigation through lower cost of imported fish. How long this factor will prevail is another matter.
With the rising standard of living in Malta over the years the weight of the food sub-index in the RPI has been declining, following a well-known economic trend which sees essentials dropping as a percentage of the total spend. But in itself, the consumption of essentials does not fall. The fall only takes place in relative terms.
That notwithstanding the food sub-index still accounts for almost a quarter of the RPI, with a weighting of 23.82 per cent. The sub-index shows that food prices have already been rising at a brisk pace for the Maltese consumer. From 108.5 per cent in January 2007, the sub-index shifted to 116.71 per cent in January this year.
At 7.72 per cent that was the second highest increase in the sub-indices of the RPI, second only to clothing and footwear, which mysteriously continue to move up in index terms, notwithstanding extensive competition in the sector.
The effect of food price inflation in Malta is that the lower income groups are worse off than the average or higher income sectors. The weighting of 23.82 per cent is related to average consumption. For the lower-income groups the percentage would be substantially higher. Which means that, like their brethren worldwide, the lower-income groups and the poor in Malta are the most severely hit by rising food prices.
The new government will be mulling what to do in these demanding circumstances. For months there has been close scrutiny of prices to try to ensure that they do not go up unfairly as a result of the changeover to the euro. Scrutiny is likely to be intensified, albeit under a mechanism different from the NECC. But scrutiny will not stem the wave of food price increases which will hit Malta if global predictions prove correct.
That is a problem the new government will have to chew over. With urgency.
Where a country is a food importer, the government considers intervention to subsidise or control prices. Where it is a net exporter the government introduces export taxes to inhibit suppliers from sending their produce abroad. A few days ago because one main exporter of wheat clamped down on sales abroad, the international price soared by over 20 per cent within minutes of the announcement. In Egypt, reckoned to be the largest importer of wheat, price increases are being - for the moment - absorbed by the state.
The ongoing discussion on the cause of the inflation is triggered by recognition that the global economy is at the beginning of a period in which the consumer will face higher food prices. Reasons put forward range from climatic conditions (ostensibly due to climate change, like drought), to the knock-on effect of the escalating crude oil price on biofuels and the resulting decline in the cultivation of cereals. Countervailing measures seem to be having little effect. In the northern hemisphere much more wheat was planted over the winter, which should normally signal improved supplies (weather factors remaining equal). That notwithstanding, it is expected that there too prices will step up.
Input costs of various edible and non-edible products, such as vegetable oil, are also rising, pushing up the production cost of the final product.
Whatever the causal factors, the trend is pointing sharply upwards. Experts say the world is seeing price increases on a scale never seen before. Economists say that government intervention, whether through price controls, subsidies, or measures to deter exports, are making things worse because they distort the market. Nevertheless few governments seem to be paying attention to economic purists, where the authorities have some leeway for policy decisions.
The situation is worse for poorer countries and also for the lower-income groups in the richer countries. In rich countries food represents only a small part of total consumption. As such, an increase in food prices does not have a large impact on the cost of living of those earning good incomes. But whole countries are being hit, also from a nutritional standpoint.
Commentators observe that record grain prices are placing a heavy burden on developing countries. The forced result is a small decline in food consumption. The situation is also affecting the United Nations' World Food Programme. Crisis talks are being held to decide what aid to cut if new and compensating donations do not arrive.
No country is immune to the growing phenomenon of food price inflation, let alone Malta, which is such a heavy importer of all types of food. The government already subsidises grain imports. The subsidy was increased last year to try to cushion the impact on bread and related products. The further increase in international prices will soon exert fresh pressure. It may be the case that consumption of bread has decreased over the years. But the Maltese loaf is still part of the staple diet for thousands of families.
It is not only bread and other cereal-related products which are affected. The price of meat has also been going up, hitting the cost of living and restaurant prices. To an extent, there has been some mitigation through lower cost of imported fish. How long this factor will prevail is another matter.
With the rising standard of living in Malta over the years the weight of the food sub-index in the RPI has been declining, following a well-known economic trend which sees essentials dropping as a percentage of the total spend. But in itself, the consumption of essentials does not fall. The fall only takes place in relative terms.
That notwithstanding the food sub-index still accounts for almost a quarter of the RPI, with a weighting of 23.82 per cent. The sub-index shows that food prices have already been rising at a brisk pace for the Maltese consumer. From 108.5 per cent in January 2007, the sub-index shifted to 116.71 per cent in January this year.
At 7.72 per cent that was the second highest increase in the sub-indices of the RPI, second only to clothing and footwear, which mysteriously continue to move up in index terms, notwithstanding extensive competition in the sector.
The effect of food price inflation in Malta is that the lower income groups are worse off than the average or higher income sectors. The weighting of 23.82 per cent is related to average consumption. For the lower-income groups the percentage would be substantially higher. Which means that, like their brethren worldwide, the lower-income groups and the poor in Malta are the most severely hit by rising food prices.
The new government will be mulling what to do in these demanding circumstances. For months there has been close scrutiny of prices to try to ensure that they do not go up unfairly as a result of the changeover to the euro. Scrutiny is likely to be intensified, albeit under a mechanism different from the NECC. But scrutiny will not stem the wave of food price increases which will hit Malta if global predictions prove correct.
That is a problem the new government will have to chew over. With urgency.