Growing concern over inflation

It is not surprising that inflation has risen to the top of the list of issues worrying the people most. The fact that this is happening not just in Malta but in so many other countries as well is hardly of any consolation. Indeed, it seems that, given the present situation, when matters look as if they are getting worse, the prospect of more belt-tightening times ahead is not exactly one that goes down well with summer time. Even so, the Maltese are more hopeful than others in the European Union about economic and employment prospects, at least according to the latest EU survey done between March 26 and April 4. It remains to be seen if the people's views have changed since then but the mood certainly indicates growing concern over inflation.

Also yet to be seen is the impact of rising inflation on domestic demand.

There have already been reports of a drop in the sale of petrol since the last price rise at the pump. It is all to the good if the drop represents a determined will on the part of motorists to cut unnecessary trips. It is certainly not the time to waste, not just in the use of petrol, but also in power consumption.

However, it looks that even in the case of power consumption, more and more people are seeing how they can cut their bills either by being more careful in the use of domestic appliances or by installing solar power heating equipment in their homes.

Again, while all this may help extend the family's budget to some degree, more expenses are on the way, in the form of higher rates for water and electricity consumption. It is not known yet if the government will do away with the surcharge and incorporate the planned rise in a restructured tariff scale but there is no escape route. As if this were not enough, Malta has had the second highest rise in food prices in the eurozone over a 12-month period, of 9.7 per cent compared to 6.2 per cent in the rest of the eurozone.

Even though the government is arguing that there is no case for compensation as it has already given an extra amount in the allowance awarded in the budget for this year to make up for the rise in food prices, there is no doubt the unions will argue that this has not been enough to meet the actual rise.

It is a vicious circle as the across-the-board allowance granted annually to make up for the rise in the cost of living pushes up production costs and threatens to weaken the competitiveness of firms already struggling to keep their markets, unless, of course, the rise is backed by an increase in productivity.

In the opinion of the International Monetary Fund, COLA, the cost-of-living wage adjustment mechanism, is highly unusual among advanced economies and it advised its eventual removal as it hindered productivity-based wage increases and contributed to inflation. That has been the view of employers and of others as well, but the government will not hear of removing COLA, because, it argues, it has worked well over time as it has kept industrial unrest in check.

Catching up with the living standard in the more advanced members of the European Union is going to be a tough task indeed!