(Adds UHM call for unions to act responsibly, comments by Finance Minister, analysis showing food main contributor to inflation growth)

The price level of goods compared to the hourly labour cost is 77 percent higher in Malta than the EU average, a national conference on the cost of living was told this morning.

The conference is being hosted by the Labour Party and includes representatives of the government and the social partners.

University Professor Joe Falzon, head of the Dept of Banking and Finance, opened proceedings with an overview of the situation in Malta and the EU and observed that several categories were significantly more expensive here than in mainland Europe.

Among them were footwear and household appliances, the latter being up to 200 percent more expensive and transport services (240%).

He said that Malta needed to identify what had enabled it to keep inflation low in 2007, so that it could replicate it. It also needed to assess what had driven up prices more recently. He stressed that Malta needed to improve its overall competitiveness, improve market forces and reduce market imperfections.

In this context, he called for a strengthening of the Office of Fair Competition in order to better monitor price movements as compared to other countries and the level of wages.

Malta, he stressed, needed to control inflation if it was to maintain itself as a competitive investment and tourism destination.

The island also needed to boost physical and human resources investment in order to bring about GDP growth.

Gavin Gulia, Opposition spokesman on the economy, said that inflation could be caused by demand growth or increased prices, and he felt the latter was the case for Malta. Malta, he said, needed to control price growth, including government-induced costs and bureaucracy.

GWU General Secretary Tony Zarb expressed concern over rising prices and insisted once again that the cost of living adjustment (COLA) needed to be respected and workers should therefore get the full cost of living increase at the next Budget.

Alfred Camilleri, former head of the statistics office and now permanent secretary at the Finance Ministry, pointed at food and non-alcoholic drinks as the main cause of inflation, saying they constituted 43 percent of inflation growth last month. This was important because food was something people, including tourists bought every day, compared to say, cars, where prices had dropped.

Meat alone accounted for a fifth of food inflation. A poor tomato crop meant half of food inflation was from tomatoes alone.

It was important, Mr Camilleri said, that one continued to assess the impact of public policy on price levels and act prudently. Wage moderation, he stressed, was key for the economy, as well as improving government regulation.

Finance Minister Tonio Fenech referred to earlier comparisons between prices and the average wage in Malta and Europe and said that prices and wages varied sharply between cities and other areas in Europe.

And when one made comparisons with the situation abroad, one also needed to remember that in Malta, taxes were generally lower, and education and health services were free.

One needed to account for Malta’s limitations, including its small domestic market and seasonal volatility.

Turning to Mr Zarb’s comments on COLA, Mr Fenech said the established mechanism would continue to be followed, but that mechanism allowed for particular circumstances. Decisions would be taken with the social partners. It was easy to call for salary increases, but the important thing was not to drive out jobs. In Ireland, the deficit had soared to 10% and public sector wages had been cut, he observed.

NSO figures issued last week showed Malta having the steepest inflation rate at 2.8 percent compared to 0% average in the eurozone.

Gejtu Vella, general Secretary of the UHM, said it was well and good to be discussing the cost of living, but what happened if companies closed their doors because of high labour costs? The time had come for trade unions to act responsibly and not be populist. They needed to tell the workers what the situation was.

"Are we not capable of choosing the way forward together instead of pulling the rope in different directions?" he asked.

Mgr Anton Gouder underlined the need for solidarity with the vulnerable. The focus should be on "Give as much as you can and take as much as you need need," he said, insisting there had to be morality in the social sector too.

Economist Alfred Mifsud said Malta must be the only country discussing inflation. Price repression in the run-up to euro adoption had now caused prices to explode, he said. But inflation was about statistics of the past and one needed to be discussing the future, such as growth and employment.

John Cassar White said he was concerned that the education system was based on acquired knowledge rather than creative knowledge, which was what was needed for Malta to attract investment.