Editorial

It is of little consolation, if at all, that inflation is going up everywhere. What stands out is that inflation is rising at a higher rate in Malta than in other European countries. Most of the rise in inflation is generally attributable to higher prices of crude and food, but there may be other reasons that are pushing up prices. The Maltese are by nature generally thrifty and know where to get the best prices, but the situation developing today leaves little or no room to manoeuvre, as going in search of the best prices out of town may well mean spending more on petrol than what is gained in price reductions.

Trade unions are unlikely to sit back watching prices spiralling upwards without putting claims for compensation. Nor are they likely to take into consideration the extra compensation awarded by the government in the last budget in anticipation of the price rises. They will argue, as most people do, that this has been eroded already. However, employers and others are already putting up a strong case for caution against wage demands as, they argue, Malta cannot afford to become uncompetitive. The irony is that while the inflation rate is one of the highest in the eurozone, the average wage rise is the lowest. This means that, after all, the unions have been responsible enough to know the extent to which they can go in their work to improve the workers' lot. They have to be as wage rises unsupported by rises in productivity will do harm to both individual firms and to the economy as a whole.

Inflation jumped back into the local discussion when the National Statistics Office reported a few days ago that the annual rate rose to 5.6 per cent, with the 12-month moving average rate running at 3.3 per cent. Compared to June, the annual inflation rose in 15 EU member states, remained stable in five and fell in seven. According to the International Monetary Fund, inflation is expected to remain "relatively high" in Malta through most of this year, but "it will ease in 2009".

The IMF is against the way Malta awards compensation for the rise in the cost of living, saying the system (the across-the-board wage rise known as COLA) is highly unusual among advanced economies. In its view, the system hinders productivity-based wage increases and contributes to inflation. Employers are against the system, too, but the government has no plans to abolish it.

In the light of all this, greater attention would need to be paid to removing abuses in the market and to efforts to step up economic growth. When the price of food shot up dramatically last June, the finance minister was reported saying they were looking into this deeply through the Competition Authority, and he particularly mentioned cheese, cereal and animal feed prices. "If it results that there is any wrongdoing, we will have no other option but to intervene." What was the outcome of the investigations? Was there any wrongdoing?

Ultimately though, if Malta wants to raise living standards, it would need to become more efficient and step up the rate of economic growth through the encouragement of more investment, both local and foreign, in the economy. Progress will very much depend on whether or not the island remains competitive.