When comparing the outgoing budget with that of other EU countries one cannot fail to note that Malta ended up with one of the highest inflation rates.

However, inflation is not a major concern for the Minister of Finance. The only area where the government has vowed to spend less is in cutting subsidies to state-owned entities especially to MEPA. Since MEPA will pass on the burden to the consumer, this wouldn't curb inflation. The COLA increase also adds pressure in this regard because higher labour costs are likely to send the inflation bar higher.

But all eyes must remain on the tariffs. The Minister of Finance avoided the mistake made last year of announcing the exact amounts prior to the Christmas business season. But people have been given an indication that the next hike will be robust and probably push utility prices higher than those announced in October 2008. Last year's utility price hikes triggered the present inflation, which is now being refuelled for 2010 as well. Perhaps this is why the Prime Minister is already promoting a social pact to switch off the COLA gear out of the self-inflicted inflationary spiral. Gonzi is rightly fearing that our state finances might suffer the equivalent of what has recently happened at the Marsa power station, a total blackout.

Any hike in tariffs will only carry forward the high inflation rate well into 2011. This means that our money will buy less in future and that prices, especially in tourism, will become uncompetitive. It means that even our bank investments are losing value because inflation is higher than the interest rates. It also means that Malta will be off the mark in all three Maastricht criteria, i.e. deficit, national debt and inflation.

Utility tariffs have what it takes to fan inflation further across the board.

Agnes Debono

Kercem