Given the steep increases in the prices of foodstuffs spurred by the ever-rising international prices of cereals, there is a “serious risk” that the Lm1 extra cost of living adjustment (COLA) that became effective in January could be eroded, according to Union Haddiema Maghqudin (UHM) secretary general Gejtu Vella.
Speaking to The Malta Independent yesterday, Mr Vella, whose union also runs a government-commissioned mystery shopper survey assessing price fluctuations before and after euro adoption, observed that the extra Lm1 cost of living adjustment given out in Budget 2008 stands a “serious risk” of being eroded – if it hasn’t already been – if price trends, particularly in terms of foodstuffs, continue to rise.
In Budget 2008, the government had given a total cost of living adjustment of Lm1.50 (e3.49), Lm1 (e2.33) of which was to be advanced from the next year’s COLA. The move had been made specifically to cushion against rising food prices, which have continued to soar after the budget announced last October.
“We will be monitoring the situation very closely as this is something that concerns each and every Maltese person,” Mr Vella added.
He expressed the hope that after the euro changeover and Monday’s expiry of the price stability agreements reached with 14 large importers, distributors and manufacturers, the market would “find itself” and that “any fluctuation would be in the consumers’ favour, but this (yesterday) is still the first day and we will need to see what happens.”
The UHM’s mystery shopper surveys, which analyse price fluctuations in a basket of frequently-purchased items, have now reached their final segment under the six-month agreement.
The UHM, Mr Vella explained, is currently in the process of evaluating the results for the month of March, and the results are expected to be ready for publication within the next three weeks. Past analyses have observed price increases in foodstuffs dependent on cereals, either as ingredients or in feeding livestock, but uncovered only a handful of euro-related price increases.
The union is also considering continuing the mystery shopper exercise on an internal basis, so as to keep a keen eye on price developments.
The element of imported inflation attributable to record international cereal prices is one expected to continue injecting inflationary pressure into the Maltese market, as pointed out in last week’s 2007 Quarterly Report on the Euro Area, published by the Economic and Financial Affairs Directorate-General of the European Commission.
The report noted that while international oil prices were the driving force behind the eurozone’s price increases, Malta was singled out as an exception – in that food prices were having a larger impact on inflation levels than energy.
The report observed that, “Malta imports almost all of its food supplies. Consequently, fluctuations in global food prices have a significant impact on inflation developments. In addition, due to its small size, a few food importers dominate the market, thereby hindering effective competition”.
The report added that the food component contributed over 100 per cent to the overall increase in headline inflation in Malta, as against 40 to 45 per cent in Belgium, Slovenia and Luxembourg, and just 20 per cent in Holland and France.
In the lead-up to euro adoption, the authorities developed a number of schemes aimed at securing price stability as Malta made its monumental currency changeover, which was introduced with a relatively low amount of aggravation to retailers and consumers alike.
In addition to the price stability agreements that expired on Monday, which had covered some 6,700 individual products, the FAIR scheme for retailers was introduced to ensure the correct dual display of Maltese lira and euro prices, and that no exploitative behaviour on the part of retailers during the changeover process occurred.
The FAIR scheme, which began in January 2007 – and involved the vast majority of Malta’s shops – ends on 30 June, in conjunction with the closing of the obligatory dual pricing period.
The Euro Observatory, set up under the finance ministry, is to continue operating in the future, as will the PriceWatch website, where consumers can post price hike complaints and track progress on their reports.
The National Euro Changeover Committee, meanwhile, continues to remain active and eventually is to be transformed into a government agency that will continue to operate on a number of euro-related fronts.