Editorial | Wednesday, 22 July 2009

All alone in inflationary outer space

Two separate analyses of the state of our economy focussed particularly on the trend of inflation published in the last few days have the quirky effect of making us draw breath in surprise at facts which we have experienced directly.
Permanent Secretary Alfred Camilleri’s presentation to the MCESD made public by the PL gives a blow-by-blow account of the rate of inflation over the past 12 months broken down by sector and sub-sector. Camilleri, presently of the Ministry of Finance, of the Economy and Investment formerly of the National Statistics Office gives a dispassionate account of the rise in price of staples such as meat and vegetables, water and electricity as well as less essential items such as the cost of eating out. If ever there was any need to justify the €7 per week increase in wages dictated by the COLA mechanism, there it is.
Joseph Falzon of the Department of Banking and Finance of the University of Malta goes one step further: rather than merely describing our predicament, he compares it to the state of affairs in other Eurozone countries. The contrast is stark.
While other countries are in the process of deflation or expecting minimal inflation rates, Malta has four times the Eurozone average. We appear to be altogether out of synch with our economic environment.
The boffins are scrambling to find the reasons why and pointing out the most probably effective responses: the shortest course to return to price stability and hopefully competitiveness. Clearly, the danger that exists is that the economy will find its own response before the policymakers and head us off in the opposite direction as we shoot through the roofs of our various markets and then nose dive spectacularly.
Dramatic change is the thing every serious economic operator dreads. Turning the economy into a roller-coaster ride will do much more than make us all queasy: it would create casualties and do us lasting damage.
The danger of an inflationary spiral was adverted to in the Camilleri presentation. Beyond that lies social unrest and political upheaval. Never before has it been clearer that we need a steady hand on the helm, not only at times of crisis but at all times, in between crises in order to avert them, to extend the periods in between.
The fact that we are not following the trends of our larger neighbours and trading partners indicates that we are a different economic realty, smaller, more agile and perhaps more fragile. We have also made ourselves different: the global financial crisis may have provoked the domestic crisis but the underlying causes for these effects are homegrown.
The graphs and charts document the remarkable difference in energy costs between Malta and its relevant economic partners. Does it also explain the differences in the cost of food, clothing, water and transport? Quite possibly. Did the uncertainty and the confusion in the revision of electricity tariffs contribute to the inflationary spike since September 2008? If so, by how much?
If the global financial crisis caused the combustion, a 12 month saga over electricity bills may have been the detonator. Now we are dreading the explosion. But who packed the explosive?
As we face remedies as dreadful as the maladies, few may find the time to seek out the root causes. Unless we seize the opportunity to address them which our present situation allows us we will have turned a serious mishap into a tragedy. It may be necessary now to put the fear of God into restaurateurs and retailers to drive them into becoming agents of deflation just as they appear to have been in the run up to the Euro Changeover. A major U-turn in energy policy appears called for in order to return to the happy period, also in the last months of 2007, when our energy costs appear to have been below the Eurozone average. But above all, we appear to require structural change. These analyses are joined in their inevitable subtext, a call for transparency, reliable up to the minute information, a culture which requires economic impact assessments before major changes with economic connotations. Either that or we will scramble to avoid this waterfall only to head towards the next.


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22 July 2009


Malta Today


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