The Central Bank of Malta believes hotel rates are “overstated” in the country’s price index, leading to the contradiction of higher inflation in a sluggish economy.
There is the possibility that the impact of accommodation prices on the HICP inflation rate is being overstated
In an interview with The Times Business Central Bank Governor Josef Bonnici talks about his concerns on the methodology used by the National Statistics Office to gather hotel rates.
He believes the new method adopted does not accurately measure changes in accommodation prices as paid by tourists.
Hotel accommodation is included in the internationally-recognised HICP index (Harmonised Index of Consumer Prices), which is a distinct instrument from the Retail Price Index (RPI).
“At this stage there is the possibility that the impact of accommodation prices on the HICP inflation rate is being overstated,” Prof. Bonnici said, adding the Bank was in talks with the Malta Statistics Authority and the NSO on the issue. “They have agreed to look further into it.”
The Central Bank has also offered to fund a survey to have a proper snapshot of hotel accommodation prices.
The HICP and RPI have shown conflicting tendencies over recent months. Inflation based on the HICP has accelerated with the annual rate rising from 1.7 per cent in January to 4.4 per cent in June. The RPI does not show the same accelerating path.
Prof. Bonnici says the RPI index is of direct relevance to consumers and more relevant than the HICP in terms of the risk of secondary price increases.
He says that more than half of the annual increase in the overall HICP index in July reflected developments in the services sector, particularly a sharp increase in hotel accommodation rates.
Hotel accommodation is not relevant to consumers, he explains, but the HICP is the index used internationally tocompare inflation rates between countries.
Prof. Bonnici admits the view from abroad is that Malta has the second or third highest inflation in the eurozone. “This is the first comment I get during meetings of the European Central Bank.”
This is the second time this year that Prof. Bonnici has expressed concern on the NSO’s methodology when compiling statistics.
In June he questioned whether official figures were painting a true picture of the economy, saying there was an element of “statistical fuzziness” in GDP figures.
He had reacted to NSO figures that showed the economy entered into recession in the first three months of the year.
ksansone@timesofmalta.com