Managing inflation and the economy
Inflation The recent rise in the cost of living as measured by the harmonised index of consumer prices (HICP) stood at 5.6 per cent. This is of great concern; it is the sharpest increase in the euro area and places Malta in the fourth place of the...
Inflation
The recent rise in the cost of living as measured by the harmonised index of consumer prices (HICP) stood at 5.6 per cent. This is of great concern; it is the sharpest increase in the euro area and places Malta in the fourth place of the highest inflation rate in the eurozone. Not only is inflation eroding the purchasing power of employees, pensioners and their families - it will also affect the country's competitiveness if immediate action is not taken.
The government, unfortunately, is not tackling this issue seriously enough as it is blaming this rise solely on the increase in the price of fuels and cereals. While this is partly true it does not justify why the rise in the annual inflation rate (when excluding food and energy) increased by 4.3 per cent in July, with high price increases being registered in clothing and footwear (7 per cent), transport (4.7 per cent), communication (2.9 per cent), education (5.6 per cent) and a staggering increase in tourist-related services (9.7 per cent). Similary the 12-month moving average rate is on a constant increase reaching the rate of 3.3 per cent in July as compared to an inflation rate of 0.9 per cent in January. The government must take the bull by the horn and ensure that an authority is set up which will have all the necessary powers, resources, and competences to investigate and take the relative remedial action. All the relevant costs structures should be investigated, from port fees to distribution costs, and benchmark them with other countries to ensure that these are competitive.
One of the main benefits of joining the euro was for consumer prices to be more transparent since the consumer would be able to compare prices. However this alone would not bring prices down. Why, for example, does an espresso cost €0.5 from Fiumicino Airport and €1 from Malta? This is certainly not justified and remedial action is necessary to bring prices down without further delay. This situation is bound to negatively affect the purchasing power of the local consumer and also tourists who will think twice before coming to our shores again!
COLA
The GWU, and other unions, has been very prudent in making demands for wage increases fearing that this could harm the competitiveness of certain industries, especially in the manufacturing and tourism sectors, leading to unemployment. According to the International Monetary Fund (IMF), Malta has registered the lowest increase in salaries within the EU. It is therefore certainly a relief that the government does not share the views of Jean-Claude Trichet, president of the European Central Bank, to remove the cost of living adjustment mechanism which has worked so well for Malta. For example, employees on the minimum wage and who are not unionised, are at least given the cost of living increase which they would otherwise not benefit from if this were removed. When keeping in mind what the IMF said about the wage increases in Malta it does not make sense to remove COLA as this is certainly not the reason why the inflation rate has shot up!
Key indicators (KIs)
Modern economies, industry and other organisations are today formally setting up monitoring and control mechanisms to ensure that timely action is taken whenever the need arises. These so-called key indicators are usually set up to monitor performance (KPI), costs (KCI) and risks (KRI), in the latter case they can be non-financial in nature such as for example the monitoring of customer service at Mater Dei Hospital.
These indicators are used to keep a small number of indicators on our dashboard and based on the traffic lights system indicate if something is wrong and needs to be investigated and addressed so that timely action is taken. Let's take as an example a car that needs to travel from A to B. The KPI is the speedometer, while the fuel gauge or the engine temperature can be compared to KRIs. If the engine is over-heating the driver will have to stop at the nearest mechanic to investigate the fault. In this way the driver is taking remedial action before it is too late! Economies, businesses, organisations and departments today need to be managed this way.
The GWU will be much in favour if government authorities set up these KIs across all government departments and ministries. The MCESD will be very interested to monitor some KIs, particularly those related to the performance of the economy, investment projects, energy prices, and also social indicators that need to be monitored to ensure a better quality of life!
• Mr Carachi is president of the General Workers' Union.
The recent rise in the cost of living as measured by the harmonised index of consumer prices (HICP) stood at 5.6 per cent. This is of great concern; it is the sharpest increase in the euro area and places Malta in the fourth place of the highest inflation rate in the eurozone. Not only is inflation eroding the purchasing power of employees, pensioners and their families - it will also affect the country's competitiveness if immediate action is not taken.
The government, unfortunately, is not tackling this issue seriously enough as it is blaming this rise solely on the increase in the price of fuels and cereals. While this is partly true it does not justify why the rise in the annual inflation rate (when excluding food and energy) increased by 4.3 per cent in July, with high price increases being registered in clothing and footwear (7 per cent), transport (4.7 per cent), communication (2.9 per cent), education (5.6 per cent) and a staggering increase in tourist-related services (9.7 per cent). Similary the 12-month moving average rate is on a constant increase reaching the rate of 3.3 per cent in July as compared to an inflation rate of 0.9 per cent in January. The government must take the bull by the horn and ensure that an authority is set up which will have all the necessary powers, resources, and competences to investigate and take the relative remedial action. All the relevant costs structures should be investigated, from port fees to distribution costs, and benchmark them with other countries to ensure that these are competitive.
One of the main benefits of joining the euro was for consumer prices to be more transparent since the consumer would be able to compare prices. However this alone would not bring prices down. Why, for example, does an espresso cost €0.5 from Fiumicino Airport and €1 from Malta? This is certainly not justified and remedial action is necessary to bring prices down without further delay. This situation is bound to negatively affect the purchasing power of the local consumer and also tourists who will think twice before coming to our shores again!
COLA
The GWU, and other unions, has been very prudent in making demands for wage increases fearing that this could harm the competitiveness of certain industries, especially in the manufacturing and tourism sectors, leading to unemployment. According to the International Monetary Fund (IMF), Malta has registered the lowest increase in salaries within the EU. It is therefore certainly a relief that the government does not share the views of Jean-Claude Trichet, president of the European Central Bank, to remove the cost of living adjustment mechanism which has worked so well for Malta. For example, employees on the minimum wage and who are not unionised, are at least given the cost of living increase which they would otherwise not benefit from if this were removed. When keeping in mind what the IMF said about the wage increases in Malta it does not make sense to remove COLA as this is certainly not the reason why the inflation rate has shot up!
Key indicators (KIs)
Modern economies, industry and other organisations are today formally setting up monitoring and control mechanisms to ensure that timely action is taken whenever the need arises. These so-called key indicators are usually set up to monitor performance (KPI), costs (KCI) and risks (KRI), in the latter case they can be non-financial in nature such as for example the monitoring of customer service at Mater Dei Hospital.
These indicators are used to keep a small number of indicators on our dashboard and based on the traffic lights system indicate if something is wrong and needs to be investigated and addressed so that timely action is taken. Let's take as an example a car that needs to travel from A to B. The KPI is the speedometer, while the fuel gauge or the engine temperature can be compared to KRIs. If the engine is over-heating the driver will have to stop at the nearest mechanic to investigate the fault. In this way the driver is taking remedial action before it is too late! Economies, businesses, organisations and departments today need to be managed this way.
The GWU will be much in favour if government authorities set up these KIs across all government departments and ministries. The MCESD will be very interested to monitor some KIs, particularly those related to the performance of the economy, investment projects, energy prices, and also social indicators that need to be monitored to ensure a better quality of life!
• Mr Carachi is president of the General Workers' Union.