Food prices causing inflation - EU report

A new EU report analysing the euro-area economy in 2007 clearly shows that Malta's inflation is primarily being caused by the prices of imported food.

The report states that although rocketing oil prices were the main reason behind price increases in the 15 euro-area member states last year, Malta remains an exception, where the price of food was having a much bigger impact than oil. According to the European Commission, one of the main reasons is the lack of competition in this sector.

"Malta imports almost all of its food supplies. Consequently, fluctuations in global food prices have a significant impact on inflation developments. In addition, due to its small size, a few food importers dominate the market, thereby hindering effective competition," the report states.

According to the 2007 Quarterly Report on the Euro Area, prepared by the Directorate-General for Economic and Financial Affairs of the European Commission, the food component contributed more than 100 per cent to the overall increase in headline inflation in Malta compared with around 40 to 45 per cent in Belgium, Slovenia and Luxembourg. In the Netherlands and France, it amounted only to 20 per cent.

On the other hand, the Commission report states that although the price of oil on the international market had a considerable effect on the general inflation trends in the euro-area, this was not the case in Malta, as energy weights in the total Harmonised Index of Consumer Prices (HICP) basket is much lower than the average in the euro area. The report states that generally, Malta is suffering from high inflation.

"Over the last six months, in the period between July 2007 and January 2008, annual HICP inflation increased by 1.4 percentage points in the euro area. In nine euro-area member states (Austria, Belgium, Cyprus, Finland, France, Greece, Italy, Luxembourg, Malta, Slovenia and Spain), it increased by more than one percentage point, whereas upward movements in other countries were more muted."

In January, the highest inflation rates were observed in Slovenia (6.4 per cent), Spain (4.4 per cent) and Luxembourg (4.2 per cent), with Eurostat, the EU's statistical arm, showing that Malta is following suit at four per cent.