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News | Wednesday, 22 July 2009

Government dead-set on curbing inflation

Food and beverage prices up by 43% in June

Karl Stagno-Navarra

A Finance Ministry study tabled at the last MCESD meeting shows that price increases witnessed in Malta during the past few months are attributed to heavy increases in the prices of food, non-alcoholic beverages, energy, restaurants and hotels.
The same report shows that by December, government is forecasting a slump in inflation following an almost continuous trend of an average 4.7 per cent this year, putting the country at the top of the Eurozone list. The forecasted inflationary rate is to stand at 1.0 per cent and 1.8 per cent for 2010.
According to the Finance Ministry and the European Commission, the outlook is set to be “more positive” than the current months, as the economy struggles through the effects of a global recession.
The increases represent the international commodity price dynamics; The rise in public-sector administered prices; The removal of state subsidies; Diseconomies of scale in local economic structures; Restrictions on competition due to structural market rigidities; price and rental value of commercial premises.
In a sub index presented to MCESD members it was revealed that the sources of inflation during 2008-2009 were as follows:
Food 9.6 per cent; Bread and cereals 6.0 per cent; Meat 7.9 per cent; Fish 4.7 per cent; Milk, cheese and eggs 1.0 per cent; Oils and fats 3.3 per cent; Sugar, jam, honey, chocolate and confectionary 14.7 per cent; non-alcoholic beverages 2.7 per cent.
The highest price levels were recorded in the fruits and vegetables sector with 27.5 per cent and 23.3 per cent respectively, triggering government to speed up the reform process at the Pitkali in a bid to correct pressures on the market.
According to sources, the reform is set to eliminate the middle-men, a practice that has contributed to price-inflation in fruit and vegetables throughout the years.
In the housing, water, electricity, gas and other fuels sector, the recorded increases were as follows:
Housing, water, electricity, gas and others 10.6 per cent; Maintenance and repair of dwellings 2.7 per cent; Services for the repair and maintenance of dwellings 2.0 per cent; Water supply 58.1 per cent; Electricity 26.3 per cent; Gas cylinder 37.0 per cent.
These figures have fuelled employers and industrialists to their argument that the vast part of inflation has been characterised by government induced increases, especially with the water and electricity tariffs.
Based on this argument, employers are resisting to payout approximately €7 per week to every worker in compensation for the recorded inflation during 2009, as provided by legislation through the Cost bof Living Adjustment (COLA).
While Finance Minister Tonio Fenech has already stated that government is not expected to change anything from the current formula that calculates COLA, other price increases recorded were in the health and education sectors.
Medical and paramedical services have increased by 6.4 per cent, Dental services by 6.9 per cent; Hospital services 6.4 per cent; Pharmaceuticals 1.9 per cent.
Education prices in general have increased by 5.2 per cent; Pre-primary-school fees 7.9 per cent; Primary school fees 5.7 per cent; Secondary School fees 7.6 per cent; Private secondary tuition 6.0 per cent.
As hoteliers and restaurant owners are pressuring government to reduce VAT on services given by their sector, it transpires that meals out in restaurants (main course) have registered an increase of 14.4 per cent in prices, while starters increased by 3.2 per cent.
During this summer, Finance Ministry officials are busy working on a draft legislation that is expected to be brought before Parliament as soon as the summer recess is over.
The legislation is expected to strengthen the Office of Fair Competition and the Consumer Department into one Regulatory Authority that will monitor and enforce market correctness.
Price control by means of monitoring and an intensive consumer information campaign is expected to kick-off by the end of the year.
In the recommendations to the Finance Minister, Permanent secretary Alfred Camilleri, who authored the report states that government must assess the impact of public policy actions on general price levels and inflation; Retain a close consideration of inflation when implementing fiscal policy; Control administered prices and excise duties; Insist on public sector efficiency and productivity; Keep local and international economic realities in perspective – prudence and wage moderation are key; Strengthen competition policy; Empower the consumer through information; Improve government regulation where necessary.

ksnavarra@mediatoday.com.mt

 

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22 July 2009
ISSUE NO. 591

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Malta Today

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