One wonders whether our senior Central Bank officials are relieved or becoming increasingly anxious at the prospect of giving up their power to influence our country’s inflation prospects in a few weeks time. When we join the Eurozone on 1 January, our Central Bank can no longer directly influence interest rates, which have traditionally been used to manage inflation – even if often not very effectively.
The European economy, and indeed the world economy, is facing one of the most uncertain periods in the last decade. There are distinct signs that inflation is on the rise, and the European Central Bank (ECB) would no doubt have increased interest rates had there not been other factors that militate against such a measure.
These other factors, of course, include the weakening of growth prospects in the European economies. A further increase in interest rates at this stage could well bring about a recession in Europe, especially if the US economy continues to be anaemic.
To complicate matters, the strength of the euro against the US dollar is making European exports uncompetitive in markets that still peg their currency to the greenback. No wonder then that the ECB seems to be caught between a rock and a hard place when deciding whether increasing inflation poses a greater risk to the European economy than impending sluggish growth, or even contraction.
We may think that, as a tiny economy within the Euro zone, we are unaffected by such complex dynamics, and that we can protect ourselves from the ill effects of both economic stagnation and inflation. But this is surely no longer the case. However complex and technical these issues may sound to the ordinary man in the street, they will ultimately affect the lives of every one of us.
It is therefore important that the Government gives its own views on how the different scenarios of economic growth and inflation that may evolve in the coming months are likely to affect the lives of ordinary people in our country, and how it plans to react to these different prospects. It is a shame that the Government has given up on understanding the real reasons behind our spiralling cost of living, especially the areas that have the highest impact on the lives of people – for example the cost of procuring food and clothing.
They superficially state that our inflation is imported, when there are clear indications that this is not always the case. We need to know where in our supply chain prices are being hiked abusively. Only last week the Office of Fair Trading in the UK fined a number of supermarkets hefty amounts for organising a cartel on dairy products. Yes, even in large economies based on the liberal free market creed, governments make sure that their regulatory authorities have sharp teeth with which to defend the consumers.
Our government, on the other hand, seems to have a reverential fear of being seen to interfere with market forces, even if these forces are sometimes manipulated by unscrupulous economic operators to squeeze the life out of consumers. Our families need to be protected from abuse. Control of inflation and, much worse, abuse of dominant positions in small economies, remains the responsibility of every government.
Our Central Bank may rightly insist that it can now no longer defend a low inflation policy through the use of interest rates, but the government remains accountable to the people for the proper adoption of policies that are aimed to ensure price stability. This responsibility, in fact, becomes even more onerous when we consider that the monetary tools will now be wielded by central bankers in the ECB, who may not necessarily care much about what is happening in every single country in the Eurozone.
A Labour administration will not shirk its responsibilities for our hard-working families by being impotent in the fight against the spiralling cost of living. We will use the authority given to us by the electorate to use every tool at our disposal to ensure that the quality of life of our people is not eroded by inflationary pressures. We will, of course, abide by the rules of membership of the Euro-zone club, but we will also tackle the local factors that are no doubt influencing the level of prices in Malta.
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