This week the National Statistics Office published the inflation data for April, while the Eurostat published the data for the individual EU member states.

Inflation is always a critical economic indicator, to the extent that it is a topic about which thousands of books must have been written. Inflation also forms part of the principal focus of any independent central bank such as the European Central Bank, the Bank of England and the Federal Reserve of the United States. Such central banks consider the control of inflation as one of their priority areas.

Traditionally there was the thinking that unemployment and inflation did not go hand in hand. In fact, if a government was facing severe unemployment, one of the policy options used to be an inflationary policy. Moreover, control of inflation was thought to bring about a higher rate of unemployment.

In terms of fiscal policy, the best strategy for a long time used to be spend, tax and spend again. That way income was redistributed in the economy and the government could stimulate those activities that were lagging behind. A fundament-al assumption in this strategy was that the government was expected to play a big role in the economy.

The severe economic crisis of the 1970s showed that we could have both unemployment and a high rate of inflation at the same time. Whereas before, inflation was not always seen in a negative light, at that stage inflation started to be seen as something intrinsically bad.

We had a shift in the use of economic policy tools by many governments, and monetary policy assumed a more important role than fiscal policy as a better tool to control inflation. Unemployment had to be combated through other means, but certainly not by following an inflationary fiscal policy.

This strategic thrust was seen to be the correct one, as an inflationary fiscal policy was seen to lead to unsustainable government defi-cits, and fiscal prudence came to be a requirement.

There was also the example of Japan in the early 1990s. The Japanese economy stagnated for several years even if its government adopted an inflationary stance in its economic policy. The more recent crisis in the inter-national financial markets was very much a consequence of a loose monetary policy, which paved the way to artificially-high asset prices and the bubble that eventually burst, thrusting the world economy into the most severe crisis in living memory. Thus it could be shown yet again that an inflationary economic policy (be it monetary or fiscal) is not sustainable.

The main issue about inflation is that, although we measure it in aggregate terms, it is very often the result of developments in a particular segment of the economy. The high rates of inflation registered in the 1970s by most countries were the result of very high oil prices. At that time, some countries were experiencing inflation in double digits.

The rates of inflation being registered nowadays are below even the five per cent level (and so much lower when compared to the 1970s) but higher than what we have experienced in recent years. They are the result of increases in the prices of raw materials and commodities, increases in the price of oil, but also an increase in the value of assets (such as pro-perty).

Giving a practical example, we can still buy certain goods cheaper than we bought them in recent years (such as IT equipment), but the rate of inflation could be higher than in previous years. This means that inflation does not hit the whole of the economy but affects specific segments.

Moreover, for countries that need to import most of their requirements (such as Malta), their inflationary pressures could be the result of more expensive imports, which are totally outside our control. Add to this a few bottlenecks that create rigidities in the market, and we could have a higher rate of inflation for the country as a whole but which is really attributable to very specific reasons.

I believe that today there is general agreement that inflationary policies help only in the short term and may be very dangerous in the long term. We do not need such policies to create real economic activity.

The productive economy works better if we invest more in those areas that enable growth and if we have a legislative framework that promotes, rather than inhibits, business activities.