Finance Minister Clyde Caruana was very clear when he addressed the representatives of the social partners at the Malta Council for Economic and Social Development.
The high inflation that has been hitting the world since early 2022 is not going away anytime soon. It will take a long time for it to go down to the normal 1-2% and, until then, one needs to be cautious and, as much as possible, try to limit the damage.
Inflation has hit us hard. The Covid-19 pandemic has pushed prices up and, as if that was not enough, then came the war in Ukraine which exacerbated matters further. International interest rates have gone up while economic growth has been curtailed.
The world is collectively struggling to find the balance and, according to Caruana, this will take a long time to settle. The minister did not put any timeframe, which means that it will probably take a few more years until the rate of inflation backs down to the more manageable parameters.
In the meantime, governments have to try to find ways so as not to allow the situation to deteriorate further. So far, there has been little success in controlling the markets, and the ripple effects are taking their toll. This has also meant that people at the lower end of the social scale, those whose income is barely enough to make ends meet, are finding it harder to cope. Their low kid of lifestyle has gone lower.
Taking Malta as an example, the fact that last year our system led to an increase of €9.90 per week for every worker via the Cost of Living Adjustment mechanism meant that prices were pushed further up as businesses tried to recoup the expenses of their wages.
The COLA system that has been in place for decades was originally set up for workers to get wage increases depending on the inflationary effects of the previous year. The COLA increase which was given for 2023 was the highest ever recorded, and it will be probably eclipsed with the one that will be given for 2024. In turn, this would mean that prices will again rise. And the vicious circle continues.
Last year, when it was evident that employers were not happy with how things were working out, we were told that during the course of 2023 there would have been discussions on the way forward. But the 12 months are almost up and we are not near any solution. The subject has not been given the importance that we all hoped for. So we are facing a situation similar to the one we faced at the same time last year; only the situation is now worse.
The budget for 2024 – we have been told by Caruana that this will be “expansive”, whatever that means – is set to be presented in the coming weeks. One expects the government to come up with the better solutions for a country that is struggling under the weight of the adverse economic effects that have taken over in the last few years.