We all know that prices have been rising. We know that inflation is taking its toll. We know that first Covid and then the war in Ukraine had an impact on the international market, on international energy prices etc.
The impact is there for all to see. Government’s subsidization of energy prices has meant that energy prices locally have remained stable, but that wasn’t the case abroad.
But the Prime Minister made an interesting statement recently. He said that while the majority of price increases are caused by international phenomena, mentioning the costs related to logistics and primary materials as an example, “there are also realities that not necessarily every increase in prices is a consequence of this.” He gave an example regarding logistics, saying that after February last year, “if for example you brought a container from China to Malta, the price rose by three to four times.” But he said now, that price, largely, has gone back down practically to the prices that there were before the war. “Now if you ask me whether that reduction is reflected in a reduction in prices, it is not necessarily always the case.” He said that the increase in primary material costs is a reality, as is it a reality that Malta has logistical difficulties since the islands are cut off from the mainland. He praised the work businesses and government did over the past months, “but let us not just see until the tip of our nose.”
“Let us not shoot ourselves in the foot, raise prices and kill our competitivity or people’s consumption.”
Abela is right on this point. If businesses have the ability to reduce prices, they very well should. The country provided a lot of support during the Covid-19 pandemic, and the country, quite successfully, kept the economy going. But we need to work together to keep moving forward. If prices are up because costs are up, that is one thing, but if there is room to reduce prices for the local community, then businesses should take the opportunity to do so. We don’t want to create more poverty in the country.
The Director of the Malta Employers Association (MEA), Joe Farrugia, was asked about the Prime Minister’s statement by The Malta Independent on Sunday.
He said that "the trend in international logistics prices may bring inflation down, but this does not necessarily imply a fall in prices".
“If inflation were to fall from 7% to 5%, prices will still be going up, but not at the same rate,” he said. Farrugia said that another factor to consider is that the inflationary spike experienced during 2022 is not exclusively the result of the cost of logistics, but also caused by other factors, such as the invasion of Ukraine by Russia and the resulting increase in food prices which were felt across many supply chains. This, he said, has also instigated an upward pressure on labour costs in many countries, including Malta “which will dampen pressures to bring prices down.” He added that what can be expected to happen in the coming months, “given that logistic prices stabilise, is that, unlike 2022, there will be more price stability”. He also said that what one should expect is a lower rate of inflation, and a wage price adjustment.
Among other things, Farrugia also said that government policies should aim at shielding vulnerable groups, such as pensioners, from experiencing undue hardships and “investigate instances of abusive practices due to profiteering or cartel behaviour, especially for essential products”.
From what Farrugia is saying, then at least prices might stable out. However, and this must be stressed upon, when the time comes for prices to be able to reduce, businesses should take the opportunity to do so. If some businesses are able to do so now, then they should. High prices means that wages are not as strong, which means less consumption, which will also mean demands for higher wages. It wouldn’t benefit anyone.
In addition, Farrugia’s suggestion regarding shielding vulnerable groups should be taken up. In fact, Farrugia said that the last budget contained some measures to this effect, through the COLA mechanism and other supplements given to the most vulnerable. His other suggestion, that government should investigate instances of abusive practices due to profiteering or cartel behaviour, especially for essential products, should also be taken up by the government.