Finance Minister Tonio Fenech yesterday expressed concern at the dramatic increase in food prices over the past year, saying the government was looking into whether lack of competition in the local market could have contributed.

Ruling out any compensation for the price hikes, Mr Fenech said this would only hit the economy badly.

According to Eurostat figures published on Monday, Malta registered the second highest increase in the prices of food - described as products generally purchased for consumption in the home - in the eurozone.

Food prices on the island rose by 9.7 per cent in the 12-month period to last April, compared to a 6.2 per cent increase in the eurozone. A sharp rise was registered between last June and November, just as a six-month price stability deal reached by the government with a number of major importers was coming into effect in the run-up to the adoption of the euro in January.

A recent European Commission report pointed out that, due to Malta's small size, a few food importers dominate the market, hindering competition.

Contacted yesterday following a meeting of EU Finance Ministers in Luxembourg, which discussed the spike in food and oil prices leaving an impact throughout the bloc, Mr Fenech said: "We are looking deeply into the matter through the Competition Authority to try to see whether there is a lack of effective competition and whether this is impinging on the surge of food prices locally".

He said investigations are already under way and the Competition Authority is studying the cheese market where abnormal prices were observed.

"Other studies are under way, particularly with regard to animal feed and the price of cereals. If it results that there is any wrongdoing, we will have no other option but to intervene."

He said the German chain supermarket Lidl, renowned for competitive prices, could possibly put pressure on the market to stabilise prices and keep them from continuing to spiral.

Asked about the possibility of compensation, he said there was no immediate measure that the government could be expected to take in the circumstances, a matter that had been discussed within the Malta Council for Economic and Social Development last month.

Granting compensation to make up for rising food prices would have a negative impact on the economy as it would increase costs to industry, possibly jeopardising jobs and threatening the creation of new ones.

The cost-of-living increase announced in the last budget was "adequate compensation" considering the current level of inflation. Moreover, the full impact of inflation would be analysed in the next budget.

"Clearly, we should not be taking such measures in the middle of the year because that would disrupt planning for industry," he said.

The minister denied that the euro changeover could have had an impact on the food price hike.

When contacted, economist Edward Scicluna said the question of why prices in Malta should be any higher than the average eurozone levels should be taken seriously "since the onus is on us to ensure that there are no restrictive trade practices which were overlooked by our regulators".

This needed to be done product by product because the county could not afford to neglect any clue that could lead to the eradication of abuses of monopoly power or any existing cartel.

"The explanation for such rises might be simple, like the seasonal factor, but we need to prove this scientifically. We cannot just do as we did in the past and always blame imports and the weather. The real price of neglecting our responsibility now is more ominous," Prof. Scicluna said.

The Labour Party expressed concern at the increase in food prices, saying that, were the increase totally due to outside forces, local prices would have gone up at the same rate as abroad.

EU Ministers yesterday agreed to work in the next few weeks on concrete ways of providing help to those hardest-hit by high fuel and food prices. The ministers also agreed that governments should not cut taxes or condone high-pay awards in response to soaring prices because of the risk that this would turn a short-term problem into a long-term one.