A great deal of time and energy has been dedicated to the analysis of the recent Price Stability Agreements reached between major local importers and the Euro Observatory. While such agreements contribute towards ensuring an easier changeover to the euro for consumers, these initiatives are in essence based on, and limited to, a predetermined time span.

However, this does not mean that consumers will no longer stand to benefit from more stable price trends. Quite the contrary; experience and evidence show that prices across the eurozone have stabilized significantly since the introduction of the euro, translating into significant and tangible benefits for consumers and businesses alike.

What do I stand to gain?

One would do well to bear in mind that one of the principal aims of Economic and Monetary Union is in actual fact to ensure Price Stability in the long term. As the institution responsible for Monetary Policy across the eurozone, the European Central Bank strives to maintain stable prices which it defines as being ‘…a year on year increase in the HICP for the euro area of below 2%’.

This essentially means that the annual inflation rate is kept hovering around the sustainable 2% mark. Research and statistics clearly show that stable prices have been achieved across the euro area, a fact made clear by European Central Bank’s successful inflation related policies to date.

While such statements and definitions may be helpful, the fact remains that consumers may not be immediately aware of the benefits they stand to enjoy as a result of such price stability trends. First and foremost, the maintenance of stable prices is given due importance as it prevents the erosion of wealth - a fact which should be of particular importance to those who may be facing particular difficulties in protecting themselves against the negative impact of instable prices and price increases.

Secondly, price stability also has the added benefit of facilitating the maintenance of low and sustainable interest rates, which effectively means that borrowing money in the form of loans remains affordable and accessible.

Furthermore, price stability also provides a certain element of guidance to the public, by enabling consumers to form realistic price expectations. Research conducted by Eurostat has revealed that this results in the stabilization of inflation expectations and perceptions, which is an important factor in ensuring that inflation is not fueled by consumers expecting a significant rise in prices.

The role of price stability in achieving a high level of economic activity should not be underestimated. An economy that demonstrates robustness and weathers economic shocks well, as the eurozone has done to date, is a valuable asset to the development of a small open economy such as ours.

Stable prices help to establish a healthy economic environment that boosts consumer confidence, attracts investment and ultimately sets the stage for further economic growth and activity. With euro adoption just around the corner, Maltese consumers are on the threshold of a more stable economy that will surely offer them great benefits in the long run.