“When America sneezes, the world catches a cold.” There are different theories and explanations as to when this popular adage was coined and to which crisis it refers to.

What definitely is certain about this saying is that it’s true and its continued validity to this day.

The flow of capital towards the United States’ fast-rising interest rates, in fact is proving increasingly difficult for other economies to handle. America’s increasing inflation hence is an indicator that the world may be on the brink of a recession.

We have seen in the recent past how in a globalised economy the symptoms of America’s cold, will also be felt half-way round the globe – no less in Malta. History has shown us that tighter American monetary policy squeezes economic activity almost everywhere else, as it will certainly stifle risk appetites, decrease investment and push up the value of the dollar.

This was confirmed by the head of the European Central Bank Christine Lagarde who starkly said that the economic outlook for Europe was “darkening”. She even went ahead to say that she expected business activity to “slow substantially” in the coming months because of high energy and food prices which were being pushed up by the war in Ukraine.

Lagarde predicted that 2023 was likely to be “a difficult year”, saying that the first quarter of the year was expected to be negative. Russia's invasion of Ukraine “continues to cast a shadow over Europe" she said, driving up energy prices that are dampening consumer spending and production by businesses hit with higher costs.

The strong boost brought about by the seasonality of tourism in countries such as Malta, was also seen to be fading, as global demand was decreasing due to poorly performing economies back home.

This is already a global phenomenon. Consumers in the United States, as well as Britain, are already feeling the pinch of the highest inflation rates in decades. Food and energy prices are exerting serious hardships on households across the board.

In the US, inflation broke a 40-year record at the beginning of the year, while in Britain inflation reached 5.5% – the highest it has been in 30 years.

Developing countries are also being affected, albeit the picture is further mixed due to other factors such as supply chain problems. For example, Turkey’s inflation hit 48.7% in January, but in large emerging markets such as Mexico and Brazil, inflation was 7.4% and 10% respectively.

China, on the other hand, was quite successful in keeping its inflation under control at 1.5%.  Providing the rest of the world with a great deal of its supplies, China stayed ahead of any goods shortage woes being experienced by everyone else.

Malta is no exception to the strong tides currently shaping up the economic sentiment. According to statistics published by the Central Bank of Malta in June, Malta’s cost of food is now higher than the average in the euro area – another symptom of overwhelming sky-rocketing inflation.

The annual food prices are set to reach 7.6% and predicted to go down to 7.1% towards the end of the year. Malta’s reality of being an importation-based consumer economy, especially when it comes to food, renders it vulnerable to sudden changes in international markets, which are being heavily affected by increasing food prices, cost of production and transportation challenges.

With Budget Day quickly approaching, the Nationalist Opposition was right to urge government to aid businesses to provide the record COLA adjustment, through public funds. Due to the ongoing global inflationary crisis, COLA is being calculated to be over €10 a week, which is likely to inflict unspoken damage to businesses and employers.

Malta’s record-breaking inflation of 6.8%, recorded last July, is certainly affecting those on the lower end of the income scale most. Government would do well to heed the calls of the Opposition to use public funds in a strategic manner to assist businesses to maintain their human resources complement.

Alexander Mangion is Attard vice mayor