Inflation unrelated to euro changeover - Eurostat

A technical report issued by Eurostat, the EU's statistical arm, shows that the rise in inflation registered in Malta in the first two months of the year has nothing to do with the introduction of the euro.

The report, compiled following a fact-finding mission to the island by a group of Eurostat experts at the end of February, concludes that the changeover only contributed to a one-off increase of between 0.2 and 0.3 percentage points.

In Malta, the annual Harmonised Index of Consumer Prices (HICP) rate for January was 3.8 per cent, up from 3.1 per cent in December 2007. In February, the index rose further to four per cent.

In the EU as a whole, the HICP increased substantially late last year, with an annual inflation rate of 3.4 per cent being registered this February.

Eurostat's report indicates that according to provisional calculations worked out by EU officials, the total (one-off) impact of the euro changeover on headline inflation in Malta, during and immediately after the changeover, was probably between 0.2 and 0.3 percentage points.

Eurostat's calculations confirms earlier statements by the EU in its Quarterly Report On The Euro Area that Malta's inflation is being fuelled not only by the high prices of energy and food on the international markets but also by the lack of effective competition on the island due to "a few food importers dominating the market".

During their visit to Malta, the Eurostat officials held talks with the National Statistics Office (NSO) and with other national stakeholders in order to hear their views on the possible impact of the changeover on prices.

According to Eurostat, some unusual prices were noticed in Malta, both in December last year and in January of this year, in certain particular sectors namely telecommunications, cars, alcoholic drinks, repairs and some other services such as accommodation services and footwear. However, Eurostat said that, against the background of the EU annual inflation rate standing at 3.4 per cent in February and the increase in inflation across the EU in recent months, it considers the euro changeover effects in Malta to have been "noticeable but not of a magnitude that could drive headline inflation".

Eurostat's estimates of a one-off impact of between 0.2 and 0.3 per cent "are in line with the experience of the first-wave changeover in 2002 and of Slovenia in 2007".

Remarking that the NSO did not release its own assessment on the impact of the changeover on inflation, Eurostat said that, if necessary, it will update its conclusions when further information becomes available.

The same exercise was also performed on Cyprus, which entered the eurozone on the same day as Malta.

Also in Cyprus's case, Eurostat found that the changeover had marginal impact on the HICP, at the same level as Malta. The only major difference is that Cyprus is currently facing higher inflation than Malta. In February, inflation there stood at 4.7 per cent.